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

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	7,321,206				268,244					4.89	%		6,835,861				269,588					5.27	%
Commercial/agricultural loans	2,450,234				74,555					4.06	%		1,761,222				72,086					5.47	%
Consumer and other loans	151,968				7,151					6.29	%		178,792				8,545					6.39	%
Total loans(1)(3)	10,078,979				354,456					4.70	%		8,876,148				353,514					5.32	%
Mortgage-backed securities	1,297,020				24,652					2.54	%		1,368,081				29,785					2.91	%
Other securities	710,967				15,205					2.86	%		449,030				10,894					3.24	%
Equity securities	165,395				309					0.25	%		—				—					—	%
Interest-bearing deposits with banks	159,065				688					0.58	%		60,655				1,118					2.46	%
FHLB stock	19,822				785					5.29	%		30,679				1,031					4.49	%
Total investment securities(3)	2,352,269				41,639					2.36	%		1,908,445				42,828					3.00	%
Total interest-earning assets	12,431,248				396,095					4.26	%		10,784,593				396,342					4.91	%
Non-interest-earning assets	1,232,997												1,053,180
Total assets	$	13,664,245											$	11,837,773
Deposits:
Interest-bearing checking accounts	$	1,352,369			1,164					0.11	%		$	1,175,521			1,660					0.19	%
Savings accounts	2,133,780				3,566					0.22	%		1,853,671				6,283					0.45	%
Money market accounts	1,940,096				5,228					0.36	%		1,510,293				7,851					0.70	%
Certificates of deposit	1,069,145				10,665					1.33	%		1,171,363				11,886					1.36	%
Total interest-bearing deposits	6,495,390				20,623					0.42	%		5,710,848				27,680					0.65	%
Non-interest-bearing deposits	4,738,559				—					—	%		3,682,047				—					—	%
Total deposits	11,233,949				20,623					0.25	%		9,392,895				27,680					0.39	%
Other interest-bearing liabilities:
FHLB advances	236,949				4,036					2.28	%		508,247				9,953					2.62	%
Other borrowings	195,977				482					0.33	%		120,847				209					0.23	%
Junior subordinated debentures and subordinated notes	181,886				4,988					3.66	%		140,212				5,008					4.78	%
Total borrowings	614,812				9,506					2.07	%		769,306				15,170					2.64	%
Total funding liabilities	11,848,761				30,129					0.34	%		10,162,201				42,850					0.56	%
Other non-interest-bearing liabilities(2)	197,912												155,771
Total liabilities	12,046,673												10,317,972
Shareholders’ equity	1,617,572												1,519,801
Total liabilities and shareholders’ equity	$	13,664,245											$	11,837,773
Net interest income/rate spread (tax equivalent)					$	365,966				3.92	%						$	353,492				4.35	%
Net interest margin (tax equivalent)										3.93	%											4.38	%
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis					(6,102		)										(4,072		)
Net interest income and margin, as reported					$	359,864				3.87	%						$	349,420				4.33	%
Additional Key Financial Ratios:
Return on average assets										0.75	%											1.27	%
Return on average equity										6.36	%											9.91	%
Average equity/average assets										11.84	%											12.84	%
Average interest-earning assets/average interest-bearing liabilities					`					174.84	%											166.42	%
Average interest-earning assets/average funding liabilities										104.92	%											106.12	%
Non-interest income/average assets										0.73	%											0.70	%
Non-interest expense/average assets										2.70	%											2.98	%
Efficiency ratio(4)										63.54	%											64.23	%
Adjusted efficiency ratio(5)										60.13	%											61.17	%

(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 $3.6 million and $3.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.5 million and $1.1 million for the nine months ended September 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)
* Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
ADJUSTED REVENUE	Quarters Ended												Nine Months Ended
	Sep 30, 2020				June 30, 2020				Sep 30, 2019				Sep 30, 2020				Sep 30, 2019
Net interest income before provision for credit losses	$	121,026			$	119,580			$	116,621			$	359,864			$	349,420
Total non-interest income	28,222				27,720				20,866				75,107				61,667
Total GAAP revenue	149,248				147,300				137,487				434,971				411,087
Exclude net (gain) loss on sale of securities	(644		)		(93		)		2				(815		)		29
Exclude net change in valuation of financial instruments carried at fair value	(37		)		(2,199		)		69				2,360				172
Adjusted revenue (non-GAAP)	$	148,567			$	145,008			$	137,558			$	436,516			$	411,288

ADJUSTED EARNINGS		Quarters Ended												Nine Months Ended
		Sep 30, 2020				June 30, 2020				Sep 30, 2019				Sep 30, 2020				Sep 30, 2019
Net income (GAAP)		$	36,548			$	23,541			$	39,577			$	76,971			$	112,623
Exclude net (gain) loss on sale of securities		(644)				(93)				2				(815)				29
Exclude net change in valuation of financial instruments carried at fair value		(37)				(2,199)				69				2,360				172
Exclude acquisition-related expenses		5				336				676				1,483				3,125
Exclude COVID-19 expenses		778				2,152				—				3,169				—
Exclude related net tax benefit		(24)				(47)				(49)				(1,476)				(668)
Total adjusted earnings (non-GAAP)		$	36,626			$	23,690			$	40,275			$	81,692			$	115,281
Diluted earnings per share (GAAP)		$	1.03			$	0.67			$	1.15			$	2.17			$	3.23
Diluted adjusted earnings per share (non-GAAP)		$	1.04			$	0.67			$	1.17			$	2.30			$	3.31

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
ADJUSTED EFFICIENCY RATIO		Quarters Ended												Nine Months Ended
		Sep 30, 2020				June 30, 2020				Sep 30, 2019				Sep 30, 2020				Sep 30, 2019
Non-interest expense (GAAP)		$	91,567			$	89,637			$	87,308			$	276,389			$	264,038
Exclude acquisition-related expenses		(5)				(336)				(676)				(1,483)				(3,125)
Exclude COVID-19 expenses		(778)				(2,152)				—				(3,169)				—
Exclude CDI amortization		(1,864)				(2,002)				(1,985)				(5,867)				(6,090)
Exclude state/municipal tax expense		(1,196)				(1,104)				(1,011)				(3,284)				(2,963)
Exclude REO operations		11				(4)				(126)				(93)				(263)
Adjusted non-interest expense (non-GAAP)		$	87,735			$	84,039			$	83,510			$	262,493			$	251,597
Net interest income before provision for credit losses (GAAP)		$	121,026			$	119,580			$	116,621			$	359,864			$	349,420
Non-interest income (GAAP)		28,222				27,720				20,866				75,107				61,667
Total revenue		149,248				147,300				137,487				434,971				411,087
Exclude net (gain) loss on sale of securities		(644)				(93)				2				(815)				29
Exclude net change in valuation of financial instruments carried at fair value		(37)				(2,199)				69				2,360				172
Adjusted revenue (non-GAAP)		$	148,567			$	145,008			$	137,558			$	436,516			$	411,288
Efficiency ratio (GAAP)		61.35		%		60.85		%		63.50		%		63.54		%		64.23		%
Adjusted efficiency ratio (non-GAAP)		59.05		%		57.95		%		60.71		%		60.13		%		61.17		%

TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS		Sep 30, 2020				June 30, 2020				Dec 31, 2019				Sep 30, 2019
Shareholders’ equity (GAAP)		$	1,646,529			$	1,625,103			$	1,594,034			$	1,530,935
Exclude goodwill and other intangible assets, net		396,412				398,276				402,279				365,764
Tangible common shareholders’ equity (non-GAAP)		$	1,250,117			$	1,226,827			$	1,191,755			$	1,165,171
Total assets (GAAP)		$	14,642,075			$	14,405,607			$	12,604,031			$	12,097,842
Exclude goodwill and other intangible assets, net		396,412				398,276				402,279				365,764
Total tangible assets (non-GAAP)		$	14,245,663			$	14,007,331			$	12,201,752			$	11,732,078
Common shareholders’ equity to total assets (GAAP)		11.25		%		11.28		%		12.65		%		12.65		%
Tangible common shareholders’ equity to tangible assets (non-GAAP)		8.78		%		8.76		%		9.77		%		9.93		%
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
Tangible common shareholders’ equity (non-GAAP)		$	1,250,117			$	1,226,827			$	1,191,755			$	1,165,171
Common shares outstanding at end of period		35,158,568				35,157,899				35,751,576				34,173,357
Common shareholders’ equity (book value) per share (GAAP)		$	46.83			$	46.22			$	44.59			$	44.80
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)		$	35.56			$	34.89			$	33.33			$	34.10

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