Banner Corporation Reports Net Income of $36.5 Million, or $1.03 Per Diluted Share, for Third Quarter 2020; Declares Quarterly Cash Dividend of $0.41 Per Share; Commits $1.5 million to Support Minority-Owned Small Businesses

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WALLA WALLA, Wash., Oct. 21, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (Banner), the parent company of Banner Bank and Islanders Bank, today reported net income of $36.5 million, or $1.03 per diluted share, for the third quarter 2020, compared to $23.5 million, or $0.67 per diluted share, in the preceding quarter and $39.6 million, or $1.15 per diluted share, in the third quarter of 2019. Banners third quarter and year-to-date earnings reflect the continuing impact of the global COVID-19 pandemic. In the first nine months of 2020, net income was $77.0 million, or $2.17 per diluted share, compared to $112.6 million, or $3.23 per diluted share, in the first nine months a year ago. The results for the first nine months of 2020 include $1.5 million of acquisition-related expenses, compared to $3.1 million of acquisition-related expenses in the first nine 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 November 12, 2020, to common shareholders of record on November 3, 2020.

The continued successful execution of our super community bank strategy generated solid revenue growth compared to both the preceding quarter and the year ago quarter. Mortgage banking revenues more than doubled compared to a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates, said Mark Grescovich, President and CEO. Third quarter earnings were impacted by a number of items, including the allowance for credit losses based on the impact of the COVID-19 pandemic on the economy. As an additional way to support the communities we serve, during this period of economic adversity, the company committed $1.5 million to selected Community Development Financial Institutions (CDFIs) in support of minority-owned small businesses as well as businesses located in economically disadvantaged rural and urban communities. Further, as of September 30, 2020, Banner has provided SBA Paycheck Protection Program loans totaling nearly $1.15 billion to 9,103 businesses and provided deferred payments, or waived interest, on 3,370 loans totaling $1.09 billion. 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.

Due to the pandemic, and its subsequent impact on our communities, we have proactively downgraded certain modified loans and other loans we consider at risk, Grescovich said. As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $168.0 million with the addition of $13.6 million in credit loss provisions during the quarter ended September 30, 2020. This provision compares to a $29.5 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago. The allowance for credit losses - loans was 1.65% of total loans and 482% of non-performing loans at the end of the third quarter of 2020.

At September 30, 2020, Banner Corporation had $14.64 billion in assets, $10.00 billion in net loans and $12.22 billion in deposits. Banner operates 170 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 September 30, 2020, Banner had funded 9,103 applications totaling $1.15 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA was August 8, 2020. Banner is no longer accepting new applications for PPP loans and is preparing to process applications for PPP loan forgiveness beginning in the fourth quarter of 2020. Banner will continue to assist small businesses with other borrowing options as they become available.

  • 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 may 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. Year to date, Banner has deferred payment or waived interest on 3,370 loans totaling $1.09 billion. Through September 30, 2020 the deferral period had ended for approximately 78%, or $849.7 million of these loans, leaving $239.6 million still on deferral. Of the loans still on deferral, 107 loans totaling $160.4 million have received a second deferral. 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 September 30, 2020 pursuant to applicable accounting and regulatory guidance.

  • Allowance for Credit Losses - Loans. Banner recorded a provision for credit losses of $13.6 million for the third quarter of 2020, compared to a $29.5 million provision in the preceding quarter and a $2.0 million provision for loan losses in the third 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 September 30, 2020 and June 30, 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 its clients and 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 Banners network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $778,000 of related costs during the third quarter of 2020, compared to $2.2 million of related costs in the second quarter of 2020.

  • Capital Management. At September 30, 2020, the tangible common shareholders equity to tangible assets* ratio was 8.78% 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. In response to the COVID-19 pandemic outbreak and to preserve capital, Banner has suspended repurchases of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Third Quarter 2020 Highlights

  • Revenues increased to $149.2 million, compared to $147.3 million in the preceding quarter, and increased 9% when compared to $137.5 million in the third quarter a year ago.

  • Net interest income, before the provision for credit losses, increased to $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.

  • Net interest margin was 3.65%, compared to 3.81% in the preceding quarter and 4.25% in the third quarter a year ago.

  • Net interest margin on a tax equivalent basis was 3.72%, compared to 3.87% in the preceding quarter and 4.29% in the third quarter a year ago.

  • Mortgage banking revenues increased 17% to $16.6 million, compared to $14.1 million in the preceding quarter, and increased 150% compared to $6.6 million in the third quarter a year ago, reflecting strong refinance and purchase demand coupled with higher margins due to decreasing market interest rates.

  • Return on average assets was 1.01%, compared to 0.68% in the preceding quarter and 1.31% in the third quarter a year ago.

  • Net loans receivable decreased to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019.

  • Non-performing assets decreased to $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets in the preceding quarter, and increased from $18.6 million, or 0.15% of total assets, at September 30, 2019.

  • Provision for credit losses - loans was $13.6 million, and the allowance for credit losses - loans was $168.0 million, or 1.65% of total loans receivable, as of September 30, 2020, compared to $156.4 million, or 1.52% of total loans receivable as of June 30, 2020 and $97.8 million or 1.11% of total loans receivable as of September 30, 2019.

  • A $1.5 million provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $12.1 million as of September 30, 2020, compared to $10.6 million as of June 30, 2020.

  • Core deposits increased 3% to $11.30 billion at September 30, 2020, compared to $10.97 billion at June 30, 2020, and increased 33% compared to $8.51 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) represented 93% of total deposits at September 30, 2020.

  • Dividends to shareholders were $0.41 per share in the quarter ended September 30, 2020.

  • Common shareholders equity per share increased 1% to $46.83 at September 30, 2020, compared to $46.22 at the preceding quarter end, and increased 5% from $44.80 a year ago.

  • Tangible common shareholders equity per share* increased 2% to $35.56 at September 30, 2020, compared to $34.89 at the preceding quarter end, and increased 4% from $34.10 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 Banners core operations reflected in the current quarters 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 September 25, 2020, Banner completed the consolidation of six branches. In addition, Banner has made the decision to consolidate another 14 branches in December of 2020. Client adoption of mobile and digital banking accelerated during the second and third quarters, while physical branch transaction volume declined. We believe this shift in client service delivery channel preference will sustain after the pandemic social distancing related restrictions have ended.

On July 22, 2020, Banner announced plans to merge Islanders Bank into Banner Bank. Regulatory approvals for the merger were received in October 2020, and the merger is expected to be completed in the first quarter of 2021.

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 Banners core systems and closure of overlapping branches.

Income Statement Review

Net interest income, before the provision for credit losses, was $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.

Banners net interest margin on a tax equivalent basis was 3.72% for the third quarter of 2020, a 15 basis-point decrease compared to 3.87% in the preceding quarter and a 57 basis-point decrease compared to 4.29% in the third quarter a year ago.

During the quarter, the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposits, resulting in significant growth in low yielding interest-bearing deposits, adversely impacted our net interest margin, said Grescovich. Acquisition accounting adjustments added seven basis points to the net interest margin in both the current quarter and in the preceding quarter and six basis points in the third quarter a year ago. The total purchase discount for acquired loans was $17.9 million at September 30, 2020, compared to $20.2 million at June 30, 2020, and $21.3 million at September 30, 2019. In the first nine months of the year, Banners net interest margin on a tax equivalent basis was 3.93% compared to 4.38% in the first nine months of 2019.

Average interest-earning asset yields decreased 18 basis points to 3.98% in the third quarter compared to 4.16% for the preceding quarter and decreased 85 basis points compared to 4.83% in the third quarter a year ago. Average loan yields decreased ten basis points to 4.47% compared to 4.57% in the preceding quarter and decreased 77 basis points compared to 5.24% in the third quarter a year ago. Loan discount accretion added nine basis points to loan yields in the third quarter of 2020, compared to eight basis points in the preceding quarter and seven basis points in the third quarter a year ago. Deposit costs were 0.17% in the third quarter of 2020, a six basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the third quarter a year ago. The decrease in deposit costs during the current quarter compared to the preceding quarter was primarily the result of decreases in market interest rates earlier this year, as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates. The total cost of funds was 0.27% during the third quarter of 2020, a four basis-point decrease compared to the preceding quarter and a 30 basis-point decrease compared to the third quarter a year ago.

Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 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 September 30, 2020 and June 30, 2020, respectively.

Total non-interest income was $28.2 million in the third quarter of 2020, compared to $27.7 million in the preceding quarter and $20.9 million in the third quarter a year ago. Deposit fees and other service charges were $8.7 million in the third quarter of 2020, compared to $7.5 million in the preceding quarter and $10.3 million in the third quarter a year ago. The decrease in deposit fees and other service charges from the third quarter a year ago is primarily a result of 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 $16.6 million in the third quarter, compared to $14.1 million in the preceding quarter and $6.6 million in the third 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 third quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans due to increased production related to refinance activity as well as increased gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2020, compared to 42% in the prior quarter and 56% in the third quarter of 2019. In the first nine months of 2020, total non-interest income increased 22% to $75.1 million, compared to $61.7 million in the first nine months of 2019.

Banners third quarter 2020 results included a $37,000 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 as a result of the tightening of market spreads during the quarter, and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of our Visa Class B shares. In the preceding quarter, results included a $2.2 million net gain for fair value adjustments and a $93,000 net gain on the sale of securities. In the third quarter a year ago, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.

Banners total revenue increased 1% to $149.2 million for the third quarter of 2020, compared to $147.3 million in the preceding quarter, and increased 9% compared to $137.5 million in the third quarter a year ago. Year-to-date, total revenues increased 6% to $435.0 million compared to $411.1 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 $148.6 million in the third quarter of 2020, compared to $145.0 million in the preceding quarter and $137.6 million in the third quarter of 2019. In the first nine months of the year, adjusted revenue* was $436.5 million, compared to $411.3 million in the first nine months of 2019.

Total non-interest expense was $91.6 million in the third quarter of 2020, compared to $89.6 million in the preceding quarter and $87.3 million in the third quarter of 2019. The increase in non-interest expense reflects an increase in the provision for credit losses - unfunded commitments in the current quarter. The current quarter includes a $1.5 million of provision for credit losses - unfunded loan commitments compared to a $905,000 recapture of provision for the prior quarter and no provision for the year ago quarter. A reduction in capitalized loan origination costs during third quarter of 2020, primarily related to the decline in the origination of SBA PPP loans compared to the prior quarter, also contributed to the quarter-over-quarter increase in non-interest expense. The decrease in COVID-19 expenses during the current quarter as well as lower salary and employee benefits as a result of lower medical claims partially offset these increases. The year-over-year increase also reflects an FDIC credit of $2.7 million for previously paid deposit insurance premiums which resulted in a net deposit insurance benefit of $1.6 million for the quarter ended September 30, 2019. Acquisition-related expenses were $5,000 for the third quarter of 2020, compared to $336,000 for the preceding quarter and $676,000 in the third quarter a year ago. Year-to-date, total non-interest expense was $276.4 million, compared to $264.0 million in the same period a year earlier. Banners efficiency ratio was 61.35% for the current quarter, compared to 60.85% in the preceding quarter and 63.50% in the year ago quarter. Banners adjusted efficiency ratio* was 59.05% for the current quarter, compared to 57.95% in the preceding quarter and 60.71% in the year ago quarter.

For the third quarter of 2020, Banner had $7.5 million in state and federal income tax expense for an effective tax rate of 17.0%, 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 2% to $14.64 billion at September 30, 2020, compared to $14.41 billion at June 30, 2020, and increased 21% when compared to $12.10 billion at September 30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.63 billion at September 30, 2020, compared to $2.30 billion at June 30, 2020 and $1.87 billion at September 30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at September 30, 2020, compared to 3.1 years at September 30, 2019.

Net loans receivable decreased 1% to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019. The year-over-year increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020, which totaled $1.15 billion as of September 30, 2020 and also 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 decreased to $4.07 billion at September 30, 2020, compared to $4.11 billion at June 30, 2020, and increased 11% compared to $3.67 billion a year ago. Commercial business loans decreased 1% to $3.11 billion at September 30, 2020, compared to $3.15 billion at June 30, 2020, and increased 52% compared to $2.05 billion a year ago primarily due to SBA PPP loans. Agricultural business loans decreased to $326.2 million at September 30, 2020, compared to $328.1 million three months earlier and $356.0 million a year ago. Total construction, land and land development loans were $1.27 billion at September 30, 2020, a 3% increase from $1.24 billion at June 30, 2020, and a 9% increase compared to $1.16 billion a year earlier. Consumer loans decreased to $622.8 million at September 30, 2020, compared to $642.4 million at June 30, 2020, and $685.1 million a year ago. One- to four-family loans decreased to $771.4 million at September 30, 2020, compared to $817.8 million at June 30, 2020, and $909.0 million a year ago.

Loans held for sale were $185.9 million at September 30, 2020, compared to $258.7 million at June 30, 2020, and $244.9 million at September 30, 2019. The volume of one- to four- family residential mortgage loans sold was $327.7 million in the current quarter, compared to $292.4 million in the preceding quarter and $204.6 million in the third quarter a year ago. During the third quarter of 2020, Banner sold $108.6 million in multifamily loans compared to $3.1 million in the preceding quarter and $79.4 million in the third quarter a year ago. The lower level of multifamily loan sales in the second quarter of 2020 reflects a temporary disruption in the secondary market for multifamily loans as a result of the COVID-19 pandemic.

Total deposits increased 2% to $12.22 billion at September 30, 2020, compared to $12.02 billion at June 30, 2020, and increased 26% when compared to $9.73 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 deposits accounts due to changes in spending habits during the COVID-19 pandemic. The year-over-year increase in deposits also included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019. Non-interest-bearing account balances increased 2% to $5.41 billion at September 30, 2020, compared to $5.28 billion at June 30, 2020, and increased 39% compared to $3.89 billion a year ago. Core deposits increased 3% from the prior quarter and increased 33% compared to a year ago and represented 93% of total deposits at September 30, 2020, compared to 91% at June 30, 2020. Certificates of deposit decreased 12% to $915.4 million at September 30, 2020, compared to $1.04 billion at June 30, 2020, and decreased 25% compared to $1.22 billion a year earlier. Banner had no brokered deposits at September 30, 2020, compared to $119.4 million in brokered deposits at June 30, 2020 and $299.5 million a year ago. FHLB borrowings totaled $150.0 million at September 30, 2020, compared to $150.0 million at June 30, 2020, and $382.0 million a year earlier.

At September 30, 2020, total common shareholders equity was $1.65 billion, or 11.25% of assets, compared to $1.63 billion or 11.28% of assets at June 30, 2020, and $1.53 billion or 12.65% of assets a year ago. At September 30, 2020, tangible common shareholders equity*, which excludes goodwill and other intangible assets, net, was $1.25 billion, or 8.78% of tangible assets*, compared to $1.23 billion, or 8.76% of tangible assets, at June 30, 2020, and $1.17 billion, or 9.93% of tangible assets, a year ago. Banners tangible book value per share* increased to $35.56 at September 30, 2020, compared to $34.10 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 September 30, 2020, Banner's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 9.56%, and its total capital to risk-weighted assets ratio was 14.65%.

Credit Quality

The allowance for credit losses - loans was $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, compared to $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, and $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% 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 $12.1 million at September 30, 2020, compared to $10.6 million at June 30, 2020 and $2.6 million at September 30, 2019. Net loan charge-offs totaled $2.0 million in the third quarter of 2020, compared to net loan charge-offs of $3.7 million in the preceding quarter and $2.5 million of net charge-offs in the third quarter a year ago. Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 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 $34.8 million at September 30, 2020, compared to $37.4 million at June 30, 2020, and $18.3 million a year ago. Real estate owned and other repossessed assets were $1.8 million at September 30, 2020, compared to $2.4 million at June 30, 2020, and $343,000 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 September 30, 2020, the total purchase discount for acquired loans was $17.9 million.

Banners total substandard loans were $423.2 million at September 30, 2020, compared to $359.8 million at June 30, 2020, and $113.2 million a year ago. The increase in substandard loans during the most recent quarters primarily reflects Banner proactively downgrading loans in industries most at risk due to COVID-19.

Banners total non-performing assets were $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets, at June 30, 2020, and $18.6 million, or 0.15% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, October 22, 2020, at 8:00 a.m. PDT, to discuss its third 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 10147897, or at www.bannerbank.com.

About the Company

Banner Corporation is a $14.64 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 Banners 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 Banners 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 Banners 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

 

Nine Months Ended

(in thousands except shares and per share data)

 

Sep 30, 2020

 

June 30, 2020

 

Sep 30, 2019

 

Sep 30, 2020

 

Sep 30, 2019

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

116,716

 

 

$

115,173

 

 

$

118,096

 

 

$

350,815

 

 

$

350,558

 

Mortgage-backed securities

 

7,234

 

 

7,983

 

 

9,415

 

 

24,354

 

 

29,716

 

Securities and cash equivalents

 

5,631

 

 

5,591

 

 

3,925

 

 

14,824

 

 

11,996

 

 

 

129,581

 

 

128,747

 

 

131,436

 

 

389,993

 

 

392,270

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

Deposits

 

5,179

 

 

6,694

 

 

10,014

 

 

20,623

 

 

27,680

 

Federal Home Loan Bank advances

 

988

 

 

984

 

 

3,107

 

 

4,036

 

 

9,953

 

Other borrowings

 

128

 

 

238

 

 

82

 

 

482

 

 

209

 

Junior subordinated debentures and subordinated notes

 

2,260

 

 

1,251

 

 

1,612

 

 

4,988

 

 

5,008

 

 

 

8,555

 

 

9,167

 

 

14,815

 

 

30,129

 

 

42,850

 

Net interest income before provision for credit losses

 

121,026

 

 

119,580

 

 

116,621

 

 

359,864

 

 

349,420

 

PROVISION FOR CREDIT LOSSES

 

13,641

 

 

29,528

 

 

2,000

 

 

64,917

 

 

6,000

 

Net interest income

 

107,385

 

 

90,052

 

 

114,621

 

 

294,947

 

 

343,420

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

Deposit fees and other service charges

 

8,742

 

 

7,546

 

 

10,331

 

 

26,091

 

 

36,995

 

Mortgage banking operations

 

16,562

 

 

14,138

 

 

6,616

 

 

40,891

 

 

15,967

 

Bank-owned life insurance

 

1,286

 

 

2,317

 

 

1,076

 

 

4,653

 

 

3,475

 

Miscellaneous

 

951

 

 

1,427

 

 

2,914

 

 

5,017

 

 

5,431

 

 

 

27,541

 

 

25,428

 

 

20,937

 

 

76,652

 

 

61,868

 

Net gain (loss) on sale of securities

 

644

 

 

93

 

 

(2

)

 

815

 

 

(29

)

Net change in valuation of financial instruments carried at fair value

 

37

 

 

2,199

 

 

(69

)

 

(2,360

)

 

(172

)

Total non-interest income

 

28,222

 

 

27,720

 

 

20,866

 

 

75,107

 

 

61,667

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

Salary and employee benefits

 

61,171

 

 

63,415

 

 

59,090

 

 

184,494

 

 

169,359

 

Less capitalized loan origination costs

 

(8,517

)

 

(11,110

)

 

(7,889

)

 

(25,433

)

 

(20,137

)

Occupancy and equipment

 

13,022

 

 

12,985

 

 

12,566

 

 

39,114

 

 

39,013

 

Information / computer data services

 

6,090

 

 

6,084

 

 

5,657

 

 

17,984

 

 

16,256

 

Payment and card processing services

 

4,044

 

 

3,851

 

 

4,330

 

 

12,135

 

 

12,355

 

Professional and legal expenses

 

2,368

 

 

2,163

 

 

2,704

 

 

6,450

 

 

7,474

 

Advertising and marketing

 

1,105

 

 

652

 

 

2,221

 

 

3,584

 

 

5,815

 

Deposit insurance expense

 

1,628

 

 

1,705

 

 

(1,604

)

 

4,968

 

 

1,232

 

State/municipal business and use taxes

 

1,196

 

 

1,104

 

 

1,011

 

 

3,284

 

 

2,963

 

Real estate operations

 

(11

)

 

4

 

 

126

 

 

93

 

 

263

 

Amortization of core deposit intangibles

 

1,864

 

 

2,002

 

 

1,985

 

 

5,867

 

 

6,090

 

Provision/(recapture) for credit losses - unfunded loan commitments

 

1,539

 

 

(905

)

 

 

 

2,356

 

 

 

Miscellaneous

 

5,285

 

 

5,199

 

 

6,435

 

 

16,841

 

 

20,230

 

 

 

90,784

 

 

87,149

 

 

86,632

 

 

271,737

 

 

260,913

 

COVID-19 expenses

 

778

 

 

2,152

 

 

 

 

3,169

 

 

 

Acquisition-related expenses

 

5

 

 

336

 

 

676

 

 

1,483

 

 

3,125

 

Total non-interest expense

 

91,567

 

 

89,637

 

 

87,308

 

 

276,389

 

 

264,038

 

Income before provision for income taxes

 

44,040

 

 

28,135

 

 

48,179

 

 

93,665

 

 

141,049

 

PROVISION FOR INCOME TAXES

 

7,492

 

 

4,594

 

 

8,602

 

 

16,694

 

 

28,426

 

NET INCOME

 

$

36,548

 

 

$

23,541

 

 

$

39,577

 

 

$

76,971

 

 

$

112,623

 

Earnings per share available to common shareholders:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.04

 

 

$

0.67

 

 

$

1.15

 

 

$

2.18

 

 

$

3.24

 

Diluted

 

$

1.03

 

 

$

0.67

 

 

$

1.15

 

 

$

2.17

 

 

$

3.23

 

Cumulative dividends declared per common share

 

$

0.41

 

 

$

 

 

$

0.41

 

 

$

0.82

 

 

$

1.23

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

35,193,109

 

 

35,189,260

 

 

34,407,462

 

 

35,285,567

 

 

34,760,607

 

Diluted

 

35,316,679

 

 

35,283,690

 

 

34,497,994

 

 

35,524,771

 

 

34,850,006

 

Increase (decrease) in common shares outstanding

 

669

 

 

55,440

 

 

(400,286

)

 

(593,008

)

 

(1,009,415

)


FINANCIAL  CONDITION

 

 

 

 

 

 

 

 

 

Percentage Change

(in thousands except shares and per share data)

 

Sep 30, 2020

 

June 30, 2020

 

Dec 31, 2019

 

Sep 30, 2019

 

Prior Qtr

 

Prior Yr Qtr

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

289,144

 

 

 

$

291,036

 

 

 

$

234,359

 

 

 

$

250,671

 

 

 

(0.7

)

%

 

15.3

 

%

Interest-bearing deposits

 

416,394

 

 

 

128,938

 

 

 

73,376

 

 

 

73,785

 

 

 

222.9

 

%

 

464.3

 

%

Total cash and cash equivalents

 

705,538

 

 

 

419,974

 

 

 

307,735

 

 

 

324,456

 

 

 

68.0

 

%

 

117.5

 

%

Securities - trading

 

23,276

 

 

 

23,239

 

 

 

25,636

 

 

 

25,672

 

 

 

0.2

 

%

 

(9.3

)

%

Securities - available for sale

 

1,758,384

 

 

 

1,706,781

 

 

 

1,551,557

 

 

 

1,539,908

 

 

 

3.0

 

%

 

14.2

 

%

Securities - held to maturity

 

429,033

 

 

 

441,075

 

 

 

236,094

 

 

 

230,056

 

 

 

(2.7

)

%

 

86.5

 

%

Total securities

 

2,210,693

 

 

 

2,171,095

 

 

 

1,813,287

 

 

 

1,795,636

 

 

 

1.8

 

%

 

23.1

 

%

Equity securities

 

450,255

 

 

 

340,052

 

 

 

 

 

 

 

 

 

32.4

 

%

 

nm

Federal Home Loan Bank stock

 

16,363

 

 

 

16,363

 

 

 

28,342

 

 

 

25,623

 

 

 

 

%

 

(36.1

)

%

Loans held for sale

 

185,938

 

 

 

258,700

 

 

 

210,447

 

 

 

244,889

 

 

 

(28.1

)

%

 

(24.1

)

%

Loans receivable

 

10,163,917

 

 

 

10,283,999

 

 

 

9,305,357

 

 

 

8,835,368

 

 

 

(1.2

)

%

 

15.0

 

%

Allowance for credit losses - loans

 

(167,965

)

 

 

(156,352

)

 

 

(100,559

)

 

 

(97,801

)

 

 

7.4

 

%

 

71.7

 

%

Net loans receivable

 

9,995,952

 

 

 

10,127,647

 

 

 

9,204,798

 

 

 

8,737,567

 

 

 

(1.3

)

%

 

14.4

 

%

Accrued interest receivable

 

48,321

 

 

 

48,806

 

 

 

37,962

 

 

 

40,033

 

 

 

(1.0

)

%

 

20.7

 

%

Real estate owned held for sale, net

 

1,795

 

 

 

2,400

 

 

 

814

 

 

 

228

 

 

 

(25.2

)

%

 

687.3

 

%

Property and equipment, net

 

171,576

 

 

 

173,360

 

 

 

178,008

 

 

 

171,279

 

 

 

(1.0

)

%

 

0.2

 

%

Goodwill

 

373,121

 

 

 

373,121

 

 

 

373,121

 

 

 

339,154

 

 

 

 

%

 

10.0

 

%

Other intangibles, net

 

23,291

 

 

 

25,155

 

 

 

29,158

 

 

 

26,610

 

 

 

(7.4

)

%

 

(12.5

)

%

Bank-owned life insurance

 

191,755

 

 

 

190,468

 

 

 

192,088

 

 

 

179,076

 

 

 

0.7

 

%

 

7.1

 

%

Other assets

 

267,477

 

 

 

258,466

 

 

 

228,271

 

 

 

213,291

 

 

 

3.5

 

%

 

25.4

 

%

Total assets

 

$

14,642,075

 

 

 

$

14,405,607

 

 

 

$

12,604,031

 

 

 

$

12,097,842

 

 

 

1.6

 

%

 

21.0

 

%

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing

 

$

5,412,570

 

 

 

$

5,281,559

 

 

 

$

3,945,000

 

 

 

$

3,885,210

 

 

 

2.5

 

%

 

39.3

 

%

Interest-bearing transaction and savings accounts

 

5,887,419

 

 

 

5,692,715

 

 

 

4,983,238

 

 

 

4,624,970

 

 

 

3.4

 

%

 

27.3

 

%

Interest-bearing certificates

 

915,352

 

 

 

1,042,006

 

 

 

1,120,403

 

 

 

1,218,591

 

 

 

(12.2

)

%

 

(24.9

)

%

Total deposits

 

12,215,341

 

 

 

12,016,280

 

 

 

10,048,641

 

 

 

9,728,771

 

 

 

1.7

 

%

 

25.6

 

%

Advances from Federal Home Loan Bank

 

150,000

 

 

 

150,000

 

 

 

450,000

 

 

 

382,000

 

 

 

 

%

 

(60.7

)

%

Customer repurchase agreements and other borrowings

 

176,983

 

 

 

166,084

 

 

 

118,474

 

 

 

120,014

 

 

 

6.6

 

%

 

47.5

 

%

Subordinated notes, net

 

98,114

 

 

 

98,140

 

 

 

 

 

 

 

 

 

 

%

 

nm

Junior subordinated debentures at fair value

 

109,821

 

 

 

109,613

 

 

 

119,304

 

 

 

113,417

 

 

 

0.2

 

%

 

(3.2

)

%

Accrued expenses and other liabilities

 

200,038

 

 

 

194,964

 

 

 

227,889

 

 

 

181,351

 

 

 

2.6

 

%

 

10.3

 

%

Deferred compensation

 

45,249

 

 

 

45,423

 

 

 

45,689

 

 

 

41,354

 

 

 

(0.4

)

%

 

9.4

 

%

Total liabilities

 

12,995,546

 

 

 

12,780,504

 

 

 

11,009,997

 

 

 

10,566,907

 

 

 

1.7

 

%

 

23.0

 

%

SHAREHOLDERS EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

1,347,612

 

 

 

1,345,096

 

 

 

1,373,940

 

 

 

1,286,711

 

 

 

0.2

 

%

 

4.7

 

%

Retained earnings

 

222,959

 

 

 

201,448

 

 

 

186,838

 

 

 

203,704

 

 

 

10.7

 

%

 

9.5

 

%

Other components of shareholders equity

 

75,958

 

 

 

78,559

 

 

 

33,256

 

 

 

40,520

 

 

 

(3.3

)

%

 

87.5

 

%

Total shareholders equity

 

1,646,529

 

 

 

1,625,103

 

 

 

1,594,034

 

 

 

1,530,935

 

 

 

1.3

 

%

 

7.6

 

%

Total liabilities and shareholders equity

 

$

14,642,075

 

 

 

$

14,405,607

 

 

 

$

12,604,031

 

 

 

$

12,097,842

 

 

 

1.6

 

%

 

21.0

 

%

Common Shares Issued:

 

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding at end of period

 

35,158,568

 

 

 

35,157,899

 

 

 

35,751,576

 

 

 

34,173,357

 

 

 

 

 

 

Common shareholders equity per share (1)

 

$

46.83

 

 

 

$

46.22

 

 

 

$

44.59

 

 

 

$

44.80

 

 

 

 

 

 

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

 

$

35.56

 

 

 

$

34.89

 

 

 

$

33.33

 

 

 

$

34.10

 

 

 

 

 

 

Common shareholders tangible equity to tangible assets (2)

 

8.78

 

%

 

8.76

 

%

 

9.77

 

%

 

9.93

 

%

 

 

 

 

Consolidated Tier 1 leverage capital ratio

 

9.56

 

%

 

9.83

 

%

 

10.71

 

%

 

10.70

 

%

 

 

 

 


(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

 

Sep 30, 2020

 

June 30, 2020

 

Dec 31, 2019

 

Sep 30, 2019

 

Prior Qtr

 

Prior Yr Qtr

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Owner-occupied

 

$

1,049,877

 

 

$

1,027,399

 

 

$

980,021

 

 

$

883,233

 

 

2.2

 

%

 

18.9

 

%

Investment properties

 

1,991,258

 

 

2,017,789

 

 

2,024,988

 

 

1,867,593

 

 

(1.3

)

%

 

6.6

 

%

Small balance CRE

 

597,971

 

 

624,726

 

 

613,484

 

 

609,620

 

 

(4.3

)

%

 

(1.9

)

%

Multifamily real estate

 

426,659

 

 

437,201

 

 

388,388

 

 

314,447

 

 

(2.4

)

%

 

35.7

 

%

Construction, land and land development:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial construction

 

220,285

 

 

215,860

 

 

210,668

 

 

190,532

 

 

2.0

 

%

 

15.6

 

%

Multifamily construction

 

291,105

 

 

256,335

 

 

233,610

 

 

214,878

 

 

13.6

 

%

 

35.5

 

%

One- to four-family construction

 

518,085

 

 

528,966

 

 

544,308

 

 

507,674

 

 

(2.1

)

%

 

2.1

 

%

Land and land development

 

240,803

 

 

235,602

 

 

245,530

 

 

250,681

 

 

2.2

 

%

 

(3.9

)

%

Commercial business:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

2,343,619

 

 

2,372,216

 

 

1,364,650

 

 

1,277,089

 

 

(1.2

)

%

 

83.5

 

%

Small business scored

 

763,824

 

 

779,678

 

 

772,657

 

 

769,538

 

 

(2.0

)

%

 

(0.7

)

%

Agricultural business, including secured by farmland

 

326,169

 

 

328,077

 

 

337,271

 

 

355,994

 

 

(0.6

)

%

 

(8.4

)

%

One- to four-family residential

 

771,431

 

 

817,787

 

 

925,531

 

 

908,988

 

 

(5.7

)

%

 

(15.1

)

%

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

Consumerhome equity revolving lines of credit

 

504,523

 

 

515,603

 

 

519,336

 

 

534,876

 

 

(2.1

)

%

 

(5.7

)

%

Consumerother

 

118,308

 

 

126,760

 

 

144,915

 

 

150,225

 

 

(6.7

)

%

 

(21.2

)

%

Total loans receivable

 

$

10,163,917

 

 

$

10,283,999

 

 

$

9,305,357

 

 

$

8,835,368

 

 

(1.2

)

%

 

15.0

 

%

Restructured loans performing under their restructured terms

 

$

5,790

 

 

$

6,391

 

 

$

6,466

 

 

$

6,721

 

 

 

 

 

Loans 30 - 89 days past due and on accrual

 

$

18,158

 

 

$

20,807

 

 

$

20,178

 

 

$

11,496

 

 

 

 

 

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

 

$

37,464

 

 

$

36,269

 

 

$

38,322

 

 

$

26,830

 

 

 

 

 

Total delinquent loans  /  Total loans receivable

 

0.37

%

 

0.35

%

 

0.41

%

 

0.30

%

 

 

 

 


LOANS BY GEOGRAPHIC LOCATION

 

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

Sep 30, 2020

 

June 30, 2020

 

Dec 31, 2019

 

Sep 30, 2019

 

Prior Qtr

 

Prior Yr Qtr

 

 

Amount

 

Percentage

 

Amount

 

Amount

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington

 

$

4,767,113

 

 

46.8

%

 

$

4,787,550

 

 

$

4,364,764

 

 

$

4,313,972

 

 

(0.4

)

%

 

10.5

%

California

 

2,316,739

 

 

22.8

%

 

2,359,703

 

 

2,129,789

 

 

1,729,208

 

 

(1.8

)

%

 

34.0

%

Oregon

 

1,858,465

 

 

18.3

%

 

1,899,933

 

 

1,650,704

 

 

1,615,192

 

 

(2.2

)

%

 

15.1

%

Idaho

 

576,983

 

 

5.7

%

 

592,515

 

 

530,016

 

 

552,523

 

 

(2.6

)

%

 

4.4

%

Utah

 

76,314

 

 

0.8

%

 

67,929

 

 

60,958

 

 

62,197

 

 

12.3

 

%

 

22.7

%

Other

 

568,303

 

 

5.6

%

 

576,369

 

 

569,126

 

 

562,276

 

 

(1.4

)

%

 

1.1

%

Total loans receivable

 

$

10,163,917

 

 

100.0

%

 

$

10,283,999

 

 

$

9,305,357

 

 

$

8,835,368

 

 

(1.2

)

%

 

15.0

%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

LOAN ORIGINATIONS

Quarters Ended

 

Sep 30, 2020

 

June 30, 2020

 

Sep 30, 2019

Commercial real estate

$

74,400

 

 

$

111,765

 

 

$

106,690

 

Multifamily real estate

2,664

 

 

6,384

 

 

27,522

 

Construction and land

412,463

 

 

290,955

 

 

303,151

 

Commercial business

153,577

 

 

1,318,438

 

 

208,277

 

Agricultural business

16,990

 

 

16,293

 

 

10,993

 

One-to four-family residential

32,733

 

 

24,537

 

 

27,184

 

Consumer

132,100

 

 

126,653

 

 

99,823

 

Total loan originations (excluding loans held for sale)

$

824,927

 

 

$

1,895,025

 

 

$

783,640

 


ADDITIONAL FINANCIAL INFORMATION

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Quarters Ended

CHANGE IN THE

 

Sep 30, 2020

 

June 30, 2020

 

Sep 30, 2019

ALLOWANCE FOR CREDIT LOSSES - LOANS

 

 

 

 

 

 

Balance, beginning of period

 

$

156,352

 

 

$

130,488

 

 

$

98,254

 

Provision for credit losses - loans

 

13,641

 

 

29,524

 

 

2,000

 

Recoveries of loans previously charged off:

 

 

 

 

 

 

Commercial real estate

 

23

 

 

54

 

 

107

 

Construction and land

 

 

 

105

 

 

156

 

One- to four-family real estate

 

94

 

 

31

 

 

129

 

Commercial business

 

246

 

 

370

 

 

162

 

Agricultural business, including secured by farmland

 

 

 

22

 

 

2

 

Consumer

 

82

 

 

60

 

 

154

 

 

 

445

 

 

642

 

 

710

 

Loans charged off:

 

 

 

 

 

 

Commercial real estate

 

(379)

 

 

 

 

(314)

 

Construction and land

 

 

 

(100)

 

 

 

One- to four-family real estate

 

(72)

 

 

 

 

(86)

 

Commercial business

 

(1,297)

 

 

(3,553)

 

 

(1,599)

 

Agricultural business, including secured by farmland

 

(492)

 

 

(62)

 

 

(741)

 

Consumer

 

(233)

 

 

(587)

 

 

(423)

 

 

 

(2,473)

 

 

(4,302)

 

 

(3,163)

 

Net (charge-offs)/recoveries

 

(2,028)

 

 

(3,660)

 

 

(2,453)

 

Balance, end of period

 

$

167,965

 

 

$

156,352

 

 

$

97,801

 

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

 

(0.019)

%

 

(0.036)

%

 

(0.027)

%


ALLOCATION OF

 

 

 

 

 

 

ALLOWANCE FOR CREDIT LOSSES - LOANS

 

Sep 30, 2020

 

June 30, 2020

 

Sep 30, 2019

Specific or allocated credit loss allowance:

 

 

 

 

 

 

Commercial real estate

 

$

59,705

 

 

$

53,166

 

 

$

28,515

 

Multifamily real estate

 

3,256

 

 

3,504

 

 

4,283

 

Construction and land

 

39,477

 

 

36,916

 

 

22,569

 

One- to four-family real estate

 

12,868

 

 

12,746

 

 

4,569

 

Commercial business

 

35,369

 

 

33,870

 

 

21,147

 

Agricultural business, including secured by farmland

 

5,051

 

 

4,517

 

 

3,895

 

Consumer

 

12,239

 

 

11,633

 

 

8,441

 

Total allocated

 

167,965

 

 

156,352

 

 

93,419

 

Unallocated

 

 

 

 

 

4,382

 

Total allowance for credit losses - loans

 

$

167,965

 

 

$

156,352

 

 

$

97,801

 

Allowance for credit losses - loans / Total loans receivable

 

1.65

%

 

1.52

%

 

1.11

%

Allowance for credit losses - loans / Non-performing loans

 

482

%

 

418

%

 

536

%


 

 

Quarters Ended

CHANGE IN THE

 

Sep 30, 2020

 

June 30, 2020

 

Sep 30, 2019

ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS

 

 

 

 

 

 

Balance, beginning of period

 

$

10,555

 

 

$

11,460

 

 

$

2,599

 

Provision/(recapture) for credit losses - unfunded loan commitments

 

1,539

 

 

(905)

 

 

 

Balance, end of period

 

$

12,094

 

 

$

10,555

 

 

$

2,599

 


ADDITIONAL FINANCIAL INFORMATION

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Sep 30, 2020

 

June 30, 2020

 

Dec 31, 2019

 

Sep 30, 2019

NON-PERFORMING ASSETS

 

 

 

 

 

 

 

Loans on non-accrual status:

 

 

 

 

 

 

 

Secured by real estate:

 

 

 

 

 

 

 

Commercial

$

7,824

 

 

$

10,845

 

 

$

5,952

 

 

$

5,092

 

Multifamily

 

 

 

 

85

 

 

87

 

Construction and land

937

 

 

732

 

 

1,905

 

 

1,318

 

One- to four-family

2,978

 

 

2,942

 

 

3,410

 

 

3,007

 

Commercial business

14,867

 

 

18,486

 

 

23,015

 

 

3,035

 

Agricultural business, including secured by farmland

2,066

 

 

433

 

 

661

 

 

757

 

Consumer

2,896

 

 

2,412

 

 

2,473

 

 

2,473

 

 

31,568

 

 

35,850

 

 

37,501

 

 

15,769

 

Loans more than 90 days delinquent, still on accrual:

 

 

 

 

 

 

 

Secured by real estate:

 

 

 

 

 

 

 

Commercial

 

 

 

 

89

 

 

89

 

Construction and land

 

 

 

 

332

 

 

1,141

 

One- to four-family

2,649

 

 

472

 

 

877

 

 

652

 

Commercial business

425

 

 

1

 

 

401

 

 

358

 

Agricultural business, including secured by farmland

 

 

1,061

 

 

 

 

 

Consumer

181

 

 

36

 

 

398

 

 

247

 

 

3,255

 

 

1,570

 

 

2,097

 

 

2,487

 

Total non-performing loans

34,823

 

 

37,420

 

 

39,598

18,256 Real estate owned (REO)1,795 2,400 814 228 Other repossessed assets37 47 122 115 Total non-performing assets$36,655 $39,867 $40,534 $18,599 Total non-performing assets to total assets0.25% 0.28% 0.32% 0.15%


Sep 30, 2020

June 30, 2020

Dec 31, 2019

Sep 30, 2019

LOANS BY CREDIT RISK RATING

Pass

$

9,699,098

$

9,869,917

$

9,130,662

$

8,702,171

Special Mention

41,575

54,291

61,189

19,989

Substandard

423,244

359,791

113,448

113,150

Doubtful

58

58

Total

$

10,163,917

$

10,283,999

$

9,305,357

$

8,835,368


Quarters Ended

Nine Months Ended

REAL ESTATE OWNED

Sep 30, 2020

June 30, 2020

Sep 30, 2019

Sep 30, 2020

Sep 30, 2019

Balance, beginning of period

$

2,400

$

2,402

$

2,513

$

814

$

2,611

Additions from loan foreclosures

48

1,588

109

Proceeds from dispositions of REO

(707

)

(98

)

(2,333

)

(805

)

(2,483

)

Gain (loss) on sale of REO

120

96

216

(9

)

Valuation adjustments in the period

(18

)

(18

)

Balance, end of period

$

1,795

$

2,400

$

228

$

1,795

$

228


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

DEPOSIT COMPOSITION

Percentage Change

Sep 30, 2020

June 30, 2020

Dec 31, 2019

Sep 30, 2019

Prior Qtr

Prior Yr Qtr

Non-interest-bearing

$

5,412,570

$

5,281,559

$

3,945,000

$

3,885,210

2.5

%

39.3

%

Interest-bearing checking

1,434,224

1,399,593

1,280,003

1,209,826

2.5

%

18.5

%

Regular savings accounts

2,332,287

2,197,790

1,934,041

1,863,839

6.1

%

25.1

%

Money market accounts

2,120,908

2,095,332

1,769,194

1,551,305

1.2

%

36.7

%

Total interest-bearing transaction and savings accounts

5,887,419

5,692,715

4,983,238

4,624,970

3.4

%

27.3

%

Total core deposits

11,299,989

10,974,274

8,928,238

8,510,180

3.0

%

32.8

%

Interest-bearing certificates

915,352

1,042,006

1,120,403

1,218,591

(12.2

)

%

(24.9

)

%

Total deposits

$

12,215,341

$

12,016,280

$

10,048,641

$

9,728,771

1.7

%

25.6

%


GEOGRAPHIC CONCENTRATION OF DEPOSITS

Sep 30, 2020

June 30, 2020

Dec 31, 2019

Sep 30, 2019

Percentage Change

Amount

Percentage

Amount

Amount

Amount

Prior Qtr

Prior Yr Qtr

Washington

$

6,820,329

55.8

%

$

6,765,186

$

5,861,809

$

5,833,547

0.8

%

16.9

%

Oregon

2,486,760

20.4

%

2,440,617

2,006,163

1,990,155

1.9

%

25.0

%

California

2,254,681

18.4

%

2,224,477

1,698,289

1,429,939

1.4

%

57.7

%

Idaho

653,571

5.4

%

586,000

482,380

475,130

11.5

%

37.6

%

Total deposits

$

12,215,341

100.0

%

$

12,016,280

$

10,048,641

$

9,728,771

1.7

%

25.6

%


INCLUDED IN TOTAL DEPOSITS

Sep 30, 2020

June 30, 2020

Dec 31, 2019

Sep 30, 2019

Public non-interest-bearing accounts

$

142,415

$

139,133

$

111,015

$

114,879

Public interest-bearing transaction & savings accounts

117,514

136,039

133,403

119,729

Public interest-bearing certificates

54,219

56,609

35,184

26,609

Total public deposits

$

314,148

$

331,781

$

279,602

$

261,217

Total brokered deposits

$

$

119,399

$

202,884

$

299,496


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 SEPTEMBER 30, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

Banner Corporation-consolidated:

Total capital to risk-weighted assets

$

1,574,737

14.65

%

$

859,979

8.00

%

$

1,074,974

10.00

%

Tier 1 capital to risk-weighted assets

1,340,173

12.47

%

644,985

6.00

%

644,985

6.00

%

Tier 1 leverage capital to average assets

1,340,173

9.56

%

560,816

4.00

%

n/a

n/a

Common equity tier 1 capital to risk-weighted assets

1,196,673

11.13

%

483,738

4.50

%

n/a

n/a

Banner Bank:

Total capital to risk-weighted assets

1,409,158

13.34

%

845,076

8.00

%

1,056,344

10.00

%

Tier 1 capital to risk-weighted assets

1,276,928

12.09

%

633,807

6.00

%

845,076

8.00

%

Tier 1 leverage capital to average assets

1,276,928

9.31

%

548,867

4.00

%

686,083

5.00

%

Common equity tier 1 capital to risk-weighted assets

1,276,928

12.09

%

475,355

4.50

%

686,624

6.50

%

Islanders Bank:

Total capital to risk-weighted assets

29,516

15.14

%

15,594

8.00

%

19,493

10.00

%

Tier 1 capital to risk-weighted assets

27,077

13.89

%

11,696

6.00

%

15,594

8.00

%

Tier 1 leverage capital to average assets

27,077

8.15

%

13,289

4.00

%

16,611

5.00

%

Common equity tier 1 capital to risk-weighted assets

27,077

13.89

%

8,772

4.50

%

12,671

6.50

%


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Quarters Ended

September 30, 2020

June 30, 2020

September 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

$

161,385

$

1,535

3.78

%

$

152,636

$

1,451

3.82

%

$

154,529

$

1,607

4.13

%

Mortgage loans

7,339,181

88,011

4.77

%

7,314,125

87,172

4.79

%

6,872,426

90,268

5.21

%

Commercial/agricultural loans

2,862,291

26,396

3.67

%

2,599,878

25,200

3.90

%

1,809,397

24,319

5.33

%

Consumer and other loans

140,493

2,195

6.22

%

152,438

2,361

6.23

%

173,342

2,791

6.39

%

Total loans(1)(3)

10,503,350

118,137

4.47

%

10,219,077

116,184

4.57

%

9,009,694

118,985

5.24

%

Mortgage-backed securities

1,250,759

7,333

2.33

%

1,286,223

8,083

2.53

%

1,358,448

9,484

2.77

%

Other securities

884,916

6,036

2.71

%

787,957

5,859

2.99

%

414,994

3,378

3.23

%

Equity securities

379,483

186

0.19

%

114,349

123

0.43

%

%

Interest-bearing deposits with banks

171,894

123

0.28

%

212,502

172

0.33

%

82,836

489

2.34

%

FHLB stock

16,363

163

3.96

%

16,620

300

7.26

%

29,400

378

5.10

%

Total investment securities (3)

2,703,415

13,841

2.04

%

2,417,651

14,537

2.42

%

1,885,678

13,729

2.89

%

Total interest-earning assets

13,206,765

131,978

3.98

%

12,636,728

130,721

4.16

%

10,895,372

132,714

4.83

%

Non-interest-earning assets

1,259,816

1,245,626

1,078,621

Total assets

$

14,466,581

$

13,882,354

$

11,973,993

Deposits:

Interest-bearing checking accounts

$

1,413,085

321

0.09

%

$

1,376,710

374

0.11

%

$

1,194,633

621

0.21

%

Savings accounts

2,251,294

813

0.14

%

2,108,896

998

0.19

%

1,854,967

2,244

0.48

%

Money market accounts

2,096,037

1,224

0.23

%

1,979,419

1,565

0.32

%

1,542,264

2,944

0.76

%

Certificates of deposit

966,028

2,821

1.16

%

1,117,547

3,757

1.35

%

1,155,710

4,205

1.44

%

Total interest-bearing deposits

6,726,444

5,179

0.31

%

6,582,572

6,694

0.41

%

5,747,574

10,014

0.69

%

Non-interest-bearing deposits

5,340,688

%

4,902,992

%

3,786,143

%

Total deposits

12,067,132

5,179

0.17

%

11,485,564

6,694

0.23

%

9,533,717

10,014

0.42

%

Other interest-bearing liabilities:

FHLB advances

150,000

988

2.62

%

156,374

984

2.53

%

476,435

3,107

2.59

%

Other borrowings

177,628

128

0.29

%

285,735

238

0.34

%

122,035

82

0.27

%

Junior subordinated debentures and subordinated notes

247,944

2,260

3.63

%

149,043

1,251

3.38

%

140,212

1,612

4.56

%

Total borrowings

575,572

3,376

2.33

%

591,152

2,473

1.68

%

738,682

4,801

2.58

%

Total funding liabilities

12,642,704

8,555

0.27

%

12,076,716

9,167

0.31

%

10,272,399

14,815

0.57

%

Other non-interest-bearing liabilities(2)

193,256

188,369

163,809

Total liabilities

12,835,960

12,265,085

10,436,208

Shareholders’ equity

1,630,621

1,617,269

1,537,785

Total liabilities and shareholders’ equity

$

14,466,581

$

13,882,354

$

11,973,993

Net interest income/rate spread (tax equivalent)

$

123,423

3.71

%

$

121,554

3.85

%

$

117,899

4.26

%

Net interest margin (tax equivalent)

3.72

%

3.87

%

4.29

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(2,397

)

(1,974

)

(1,278

)

Net interest income and margin, as reported

$

121,026

3.65

%

$

119,580

3.81

%

$

116,621

4.25

%

Additional Key Financial Ratios:

Return on average assets

1.01

%

0.68

%

1.31

%

Return on average equity

8.92

%

5.85

%

10.21

%

Average equity/average assets

11.27

%

11.65

%

12.84

%

Average interest-earning assets/average interest-bearing liabilities

180.86

%

176.15

%

167.98

%

Average interest-earning assets/average funding liabilities

104.46

%

104.64

%

106.06

%

Non-interest income/average assets

0.78

%

0.80

%

0.69

%

Non-interest expense/average assets

2.52

%

2.60

%

2.89

%

Efficiency ratio(4)

61.35

%

60.85

%

63.50

%

Adjusted efficiency ratio(5)

59.05

%

57.95

%

60.71

%


(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 $1.4 million, $1.0 million, and $889,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $976,000, $963,000, and $389,000 for the three months ended September 30, 2020, June 30, 2020, and September 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 Financial Measures on the final two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Nine Months Ended

September 30, 2020

September 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

$

155,571

$

4,506

3.87

%

$

100,273

$

3,295

4.39

%

Mortgage loans