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Banner Corporation Reports Net Income of $46.9 Million, or $1.33 Per Diluted Share, for First Quarter 2021; Declares Quarterly Cash Dividend of $0.41 Per Share

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Banner Corporation
·39 min read
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WALLA WALLA, Wash., April 21, 2021 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $46.9 million, or $1.33 per diluted share, for the first quarter of 2021, a 20% increase compared to $39.0 million, or $1.10 per diluted share, for the preceding quarter and a 178% increase compared to $16.9 million, or $0.47 per diluted share, for the first quarter of 2020. Banner’s first quarter 2021 results include $8.0 million in recapture of provision for credit losses, compared to $21.7 million in provision for credit losses in the first quarter of 2020. The first quarter 2020 provision for credit losses was primarily the result of the impact of the COVID-19 pandemic. First quarter 2021 results also include $571,000 of merger and acquisition-related expenses, compared to $579,000 for the preceding quarter, and $1.1 million of merger and acquisition-related expenses for the first quarter of 2020.

Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable May 14, 2021, to common shareholders of record on May 5, 2021.

“Banner’s core operating performance during the first quarter reflects the continued execution of our super community bank strategy, even with the challenges of the pandemic,” said Mark Grescovich, President and CEO. “We benefited from continued strong mortgage banking fee revenue, core deposit growth and the branch consolidations we completed during the prior quarter. Overall, we achieved a return on average assets of 1.24% for the quarter. The unprecedented level of market liquidity along with our continued focus on building client relationships contributed to our core deposits increasing 36% compared to March 31, 2020.”

“Due to an improvement in forecasted economic conditions, a decline in loan balances other than guaranteed SBA Paycheck Protection Program (PPP) loans, we recorded an $8.0 million recapture to our provision for credit losses during the current quarter. This compares to a $601,000 recapture to our provision for credit losses during the preceding quarter and a $21.7 million provision for credit losses in the first quarter a year ago. Our allowance for credit losses - loans remains strong at 1.57% of total loans and 426% of non-performing loans at March 31, 2021, compared to 1.69% of total loans and 470% of non-performing loans at December 31, 2020,” said Grescovich. “Banner has provided PPP loans totaling nearly $1.56 billion to 13,210 businesses as of March 31, 2021. We continue to live by our core values: doing the right thing for our clients, communities, colleagues, company and shareholders, while providing a consistent and reliable source of capital through all economic cycles and changing events.”

At March 31, 2021, Banner Corporation had $16.12 billion in assets, $9.79 billion in net loans and $13.55 billion in deposits. Banner operates 155 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. Under the initial PPP program, Banner funded 9,103 applications totaling $1.15 billion of loans in its service area. In January 2021, Banner began accepting and processing loan applications under the second PPP program enacted in December 2020. As of March 31, 2021, Banner had funded 4,107 applications totaling $410.8 million of loans under the second PPP program. As of March 31, 2021, Banner had received SBA forgiveness for 1,255 PPP loans totaling $259.9 million.

  • 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 clients for periods of up to six months. At March 31, 2021, Banner had 91 loans totaling $33.9 million still on deferral. Of the loans still on deferral, 79 loans totaling $25.7 million are mortgage loans operating under forbearance agreements. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance.

  • Allowance for Credit Losses. Banner recorded a recapture of provision for credit losses of $8.0 million for the first quarter of 2021. This compares to a $601,000 recapture of provision for credit losses recorded in the preceding quarter and a $21.7 million provision for credit losses recorded in the first quarter a year ago. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances. The provision for credit losses recorded in the first quarter a year ago reflected the deterioration in forecasted economic indicators and the economic outlook that existed at March 31, 2020 as a result of the COVID-19 pandemic.

  • Branch Operations, IT Changes and One-Time Expenses. Banner has been taking steps to resume more normal branch activities with specific guidelines in place to help safeguard the safety of our clients and personnel. To further the well-being of staff and clients, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner’s network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $148,000 of related costs during the first quarter of 2021, compared to $333,000 of related costs in the preceding quarter and $239,000 of related costs in the first quarter a year ago.

  • Capital Management. At March 31, 2021, the tangible common shareholders’ equity to tangible assets* ratio was 7.80% and Banner’s capital was well in excess of all regulatory requirements. On December 21, 2020, Banner announced that its Board of Directors authorized the repurchase of up to 1,757,781 shares of Banner’s common stock, which is equivalent to approximately 5% of its common stock. During the current quarter, Banner repurchased 500,000 shares of its common stock at an average cost of $50.62 per share.

First Quarter 2021 Highlights

  • Revenues decreased to $141.9 million, compared to $144.9 million in the preceding quarter, and increased 3% when compared to $138.4 million in the first quarter a year ago.

  • Net interest income, before the recapture of provision for credit losses, decreased to $117.7 million in the first quarter of 2021, compared to $121.4 million in the preceding quarter and $119.3 million in the first quarter a year ago.

  • Net interest margin on a tax equivalent basis was 3.44%, compared to 3.64% in the preceding quarter and 4.25% in the first quarter a year ago.

  • Mortgage banking revenues increased 7% to $11.4 million, compared to $10.7 million in the preceding quarter, and 12% compared to $10.2 million in the first quarter a year ago.

  • Return on average assets was 1.24%, compared to 1.04% in the preceding quarter and 0.54% in the first quarter a year ago.

  • Net loans receivable increased to $9.79 billion at March 31, 2021, compared to $9.70 billion at December 31, 2020, and 7% when compared to $9.16 billion at March 31, 2020.

  • Non-performing assets increased slightly to $37.0 million, or 0.23% of total assets, at March 31, 2021, compared to $36.5 million, or 0.24% of total assets in the preceding quarter, and decreased from $46.1 million, or 0.36% of total assets, at March 31, 2020.

  • The allowance for credit losses - loans was $156.1 million, or 1.57% of total loans receivable, as of March 31, 2021, compared to $167.3 million, or 1.69% of total loans receivable as of December 31, 2020 and $130.5 million or 1.41% of total loans receivable as of March 31, 2020.

  • A $1.2 million recapture of provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $12.1 million as of March 31, 2021, compared to $13.3 million as of December 31, 2020 and $11.5 million as of March 31, 2020.

  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 8% to $12.64 billion at March 31, 2021, compared to $11.65 billion at December 31, 2020, and increased 36% compared to $9.28 billion a year ago. Core deposits represented 93% of total deposits at March 31, 2021.

  • Dividends to shareholders were $0.41 per share in the quarter ended March 31, 2021.

  • Common shareholders’ equity per share decreased 2% to $46.60 at March 31, 2021, compared to $47.39 at the preceding quarter end, and increased 2% from $45.63 a year ago.

  • Tangible common shareholders’ equity per share* decreased 2% to $35.29 at March 31, 2021, compared to $36.17 at the preceding quarter end, and increased 3% from $34.23 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 credit and non-interest income) and the adjusted efficiency ratio (which excludes merger and acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties, state/municipal taxes and provision for credit losses - unfunded loan commitments from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

Significant Recent Initiatives and Events

On February 5, 2021, Islanders Bank, a wholly-owned subsidiary of Banner Corporation, was merged into Banner Bank. As a result, Banner recorded expenses associated with the merger of $571,000 during the quarter ended March 31, 2021.

On December 11, 2020, Banner Bank completed the consolidation of 15 branches and on September 25, 2020, Banner Bank completed the consolidation of six branches. As a result, Banner recorded expenses associated with these branch consolidations of $257,000 and $1.7 million, during the quarters ended March 31, 2021 and December 31, 2020, respectively. Client adoption of mobile and digital banking accelerated beginning in the second quarter of 2020 and has continued since, while physical branch transaction volume declined. Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic social distancing related restrictions have ended.

Income Statement Review

Net interest income, before the recapture of provision for credit losses, was $117.7 million in the first quarter of 2021, compared to $121.4 million in the preceding quarter and $119.3 million in the first quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.44% for the first quarter of 2021, a 20 basis-point decrease compared to 3.64% in the preceding quarter and an 81 basis-point decrease compared to 4.25% in the first quarter a year ago.

“Higher core deposit balances, resulting in a significant increase in low yielding short term investments, adversely affected our net interest margin during the quarter,” said Grescovich. “Additionally, the on-going low interest rate environment continues to put pressure on loan yields.” Acquisition accounting adjustments added five basis points to the net interest margin in both the current and preceding quarter and ten basis points in the first quarter a year ago. The total purchase discount for acquired loans was $13.9 million at March 31, 2021, compared to $16.1 million at December 31, 2020, and $22.2 million at March 31, 2020.

Average interest-earning asset yields decreased 23 basis points to 3.64% in the first quarter compared to 3.87% for the preceding quarter and decreased 105 basis points compared to 4.69% in the first quarter a year ago. Average loan yields decreased ten basis points to 4.43% compared to 4.53% in the preceding quarter and decreased 65 basis points compared to 5.08% in the first quarter a year ago. The decrease in average loan yields during the current quarter compared to the preceding quarter was primarily the result of lower rates on new originations and adjustable rate loans resetting lower as well as a decrease in interest recoveries and prepayment penalties. Loan discount accretion added seven basis points to average loan yields in both the first quarter of 2021 and in the preceding quarter and added 12 basis points in the first quarter a year ago. Deposit costs were 0.11% in the first quarter of 2021, a three basis-point decrease compared to the preceding quarter and a 24 basis-point decrease compared to the first quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020. The total cost of funds was 0.21% during the first quarter of 2021, a three basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the first quarter a year ago.

Banner recorded an $8.0 million recapture to its provision for credit losses in the current quarter, compared to a $601,000 recapture to its provision for credit losses in the prior quarter and a $21.7 million provision for credit losses in the first quarter a year ago. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances other than PPP loans. The provision for credit losses recorded in the first quarter a year ago reflected the deterioration in forecasted economic indicators and the economic outlook that existed at March 31, 2020 as a result of the COVID-19 pandemic.

Total non-interest income was $24.3 million in the first quarter of 2021, compared to $23.5 million in the preceding quarter and $19.2 million in the first quarter a year ago. Deposit fees and other service charges were $8.9 million in the first quarter of 2021, compared to $8.3 million in the preceding quarter and $9.8 million in the first quarter a year ago. The decrease in deposit fees and other service charges from the first 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 $11.4 million in the first quarter, compared to $10.7 million in the preceding quarter and $10.2 million in the first quarter of 2020. The higher mortgage banking revenue quarter-over-quarter primarily reflects higher gains on the sale of multifamily held-for-sale loans, partially offset by a decrease in the gain on sale margin on one- to four-family held-for-sale loans. The increases compared to the first quarter of 2020 were primarily due to increased production of one- to four-family held-for-sale loans, primarily due to increased refinance activity along with higher gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 54% of one- to four-family mortgage loan originations in the first quarter of 2021, compared to 51% in the prior quarter and 54% in the first quarter of 2020.

Banner’s first quarter 2021 results included a $59,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading, and a $485,000 net gain on the sale of securities. In the preceding quarter, results included a $1.7 million net gain for fair value adjustments and a $197,000 net gain on the sale of securities. In the first quarter a year ago, results included a $4.6 million net loss for fair value adjustments and a $78,000 net gain on the sale of securities.

Banner’s total revenue decreased 2% to $141.9 million for the first quarter of 2021, compared to $144.9 million in the preceding quarter, and increased 3% compared to $138.4 million in the first quarter a year ago. Adjusted revenue* (the total of net interest income before recapture of 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 $141.4 million in the first quarter of 2021, compared to $143.0 million in the preceding quarter and $142.9 million in the first quarter of 2020.

Total non-interest expense was $92.3 million in the first quarter of 2021, compared to $96.8 million in the preceding quarter and $95.2 million in the first quarter of 2020. The decrease in non-interest expense in the current quarter includes a $1.2 million recapture of provision for credit losses - unfunded loan commitments as compared to a $1.2 million provision for the prior quarter and a $1.7 million provision in the first quarter a year ago. The decrease in non-interest expense for the current quarter compared to the prior quarter also reflects a $2.5 million accrual recorded in the prior quarter related to pending litigation as well as a $1.6 million decrease in advertising and marketing expenses and a $1.3 million decrease in occupancy and equipment expense due to branch consolidations expenses recorded in the prior quarter. The year-over-year quarterly decrease in non-interest expense also reflects increased capitalized loan origination costs, primarily related to the origination of PPP loans during the current quarter. The decreases in non-interest expense for both the current quarter compared to the prior quarter and the first quarter a year ago were partially offset by increased salary and employee benefits expense. These increases include $1.3 million of severance expense related to a reduction in staffing and a $1.2 million adjustment recorded in the current quarter to increase the liability related to deferred compensation plans. Merger and acquisition-related expenses were $571,000 for the first quarter of 2021, compared to $579,000 for the preceding quarter and $1.1 million in the first quarter a year ago. Banner’s efficiency ratio was 65.04% for the current quarter, compared to 66.76% in the preceding quarter and 68.76% in the year ago quarter. Banner’s adjusted efficiency ratio* was 63.85% for the current quarter, compared to 64.31% in the preceding quarter and 62.26% in the year ago quarter.

For the first quarter of 2021, Banner had $10.8 million in state and federal income tax expense for an effective tax rate of 18.7%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 7% to $16.12 billion at March 31, 2021, compared to $15.03 billion at December 31, 2020, and increased 26% when compared to $12.78 billion at March 31, 2020. The total of securities and interest-bearing deposits held at other banks was $4.81 billion at March 31, 2021, compared to $3.69 billion at December 31, 2020 and $2.15 billion at March 31, 2020. The average effective duration of Banner's securities portfolio was approximately 5.2 years at March 31, 2021, compared to 2.9 years at March 31, 2020.

Net loans receivable increased 1% to $9.79 billion at March 31, 2021, compared to $9.70 billion at December 31, 2020, and increased 7% when compared to $9.16 billion at March 31, 2020. The increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020 and the first quarter of 2021, partially offset by decreased loan demand and lower line usage as a result of the COVID-19 pandemic. Commercial real estate and multifamily real estate loans increased slightly to $4.05 billion at March 31, 2021, compared to $4.03 billion at December 31, 2020, and increased 1% compared to $4.02 billion a year ago. Commercial business loans increased 6% to $3.09 billion at March 31, 2021 compared to $2.92 billion at December 31, 2020, and increased 43% compared to $2.17 billion a year ago, primarily due to SBA PPP loans. Agricultural business loans decreased to $262.4 million at March 31, 2021, compared to $299.9 million three months earlier and $330.3 million a year ago. Total construction, land and land development loans were $1.31 billion at March 31, 2021, a 2% increase from $1.29 billion at December 31, 2020, and a 7% increase compared to $1.22 billion a year earlier. Consumer loans decreased to $570.7 million at March 31, 2021, compared to $605.8 million at December 31, 2020, and $661.8 million a year ago. One- to four-family loans decreased to $655.6 million at March 31, 2021, reflecting held for investment loans being refinanced and sold as held for sale loans, compared to $717.9 million at December 31, 2020, and $881.4 million a year ago.

Loans held for sale were $135.3 million at March 31, 2021, compared to $243.8 million at December 31, 2020, and $182.4 million at March 31, 2020. The volume of one- to four- family residential mortgage loans sold was $300.3 million in the current quarter, compared to $356.6 million in the preceding quarter and $204.0 million in the first quarter a year ago. During the first quarter of 2021, Banner sold $107.7 million in multifamily loans compared to $10.4 million in the preceding quarter and $119.7 million in the first quarter a year ago.

Total deposits increased 8% to $13.55 billion at March 31, 2021, compared to $12.57 billion at December 31, 2020, and increased 30% when compared to $10.45 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic. Non-interest-bearing account balances increased 9% to $5.99 billion at March 31, 2021, compared to $5.49 billion at December 31, 2020, and increased 46% compared to $4.11 billion a year ago. Core deposits increased 8% from the prior quarter and increased 36% compared to a year ago and represented 93% of total deposits at both March 31, 2021 and December 31, 2020. Certificates of deposit decreased to $907.0 million at March 31, 2021, compared to $915.3 million at December 31, 2020, and decreased 22% compared to $1.17 billion a year earlier. Banner had no brokered deposits at March 31, 2021 or December 31, 2020, compared to $251.0 million a year ago. FHLB borrowings totaled $100.0 million at March 31, 2021, $150.0 million at December 31, 2020, and $247.0 million a year ago.

At March 31, 2021, total common shareholders’ equity was $1.62 billion, or 10.04% of assets, compared to $1.67 billion or 11.09% of assets at December 31, 2020, and $1.60 billion or 12.53% of assets a year ago. The decrease in total common shareholders’ equity from the prior quarter reflects the stock repurchased during the current quarter as discussed above. At March 31, 2021, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.23 billion, or 7.80% of tangible assets*, compared to $1.27 billion, or 8.69% of tangible assets, at December 31, 2020, and $1.20 billion, or 9.70% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $35.29 at March 31, 2021, compared to $34.23 per share a year ago.

Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At March 31, 2021, Banner's common equity Tier 1 capital ratio was 11.24%, its Tier 1 leverage capital to average assets ratio was 9.10%, and its total capital to risk-weighted assets ratio was 14.74%.

Credit Quality

The allowance for credit losses - loans was $156.1 million at March 31, 2021, or 1.57% of total loans receivable outstanding and 426% of non-performing loans, compared to $167.3 million at December 31, 2020, or 1.69% of total loans receivable outstanding and 470% of non-performing loans, and $130.5 million at March 31, 2020, or 1.41% of total loans receivable outstanding and 299% 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 March 31, 2021, compared to $13.3 million at December 31, 2020 and $11.5 million at March 31, 2020. Net loan charge-offs totaled $3.2 million in the first quarter of 2021, compared to net loan charge-offs of $93,000 in the preceding quarter and $404,000 of net loan recoveries in the first quarter a year ago. Banner recorded an $8.0 million recapture of provision for credit losses in the current quarter, compared to a $601,000 recapture of provision for credit losses in the prior quarter and a $21.7 million provision for loan losses in the year ago quarter. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances other than PPP loans. The provision for credit losses recorded in the first quarter a year ago reflected the deterioration in forecasted economic indicators and the economic outlook that existed at March 31, 2020 as a result of the COVID-19 pandemic. Non-performing loans were $36.6 million at March 31, 2021, compared to $35.6 million at December 31, 2020, and $43.7 million a year ago. Real estate owned and other repossessed assets were $377,000 at March 31, 2021, compared to $867,000 at December 31, 2020, and $2.4 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts were included in the determination of fair value, and as a result, no allowance for credit losses was recorded for loans acquired from acquisitions prior to January 1, 2020. At March 31, 2021, the total purchase discount for acquired loans was $13.9 million.

Banner’s total substandard loans were $311.6 million at March 31, 2021, compared to $340.2 million at December 31, 2020, and $126.1 million a year ago. The quarter over quarter decrease reflects the payoff of substandard loans as well as risk rating upgrades as certain industries impacted by the COVID-19 pandemic have begun to stabilize.

Banner’s total non-performing assets were $37.0 million, or 0.23% of total assets, at March 31, 2021, compared to $36.5 million, or 0.24% of total assets, at December 31, 2020, and $46.1 million, or 0.36% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, April 22, 2021, at 8:00 a.m. PDT, to discuss its first 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 10153346, or at www.bannerbank.com.

About the Company

Banner Corporation is a $16.12 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner’s operating and stock price performance.

The COVID-19, pandemic is adversely affecting us, our clients, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on client behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; and (16) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.

CONTACT:

MARK J. GRESCOVICH,

PRESIDENT & CEO

PETER J. CONNER, CFO

(509) 527-3636





RESULTS OF OPERATIONS

Quarters Ended

(in thousands except shares and per share data)

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

INTEREST INCOME:

Loans receivable

$

108,924

$

115,545

$

118,926

Mortgage-backed securities

9,371

7,438

9,137

Securities and cash equivalents

6,226

6,170

3,602

124,521

129,153

131,665

INTEREST EXPENSE:

Deposits

3,609

4,392

8,750

Federal Home Loan Bank advances

934

987

2,064

Other borrowings

109

121

116

Junior subordinated debentures and subordinated notes

2,208

2,216

1,477

6,860

7,716

12,407

Net interest income before (recapture)/provision for credit losses

117,661

121,437

119,258

(RECAPTURE)/PROVISION FOR CREDIT LOSSES

(8,031

)

(601

)

21,748

Net interest income

125,692

122,038

97,510

NON-INTEREST INCOME:

Deposit fees and other service charges

8,939

8,293

9,803

Mortgage banking operations

11,440

10,690

10,191

Bank-owned life insurance

1,307

1,319

1,050

Miscellaneous

2,042

1,306

2,639

23,728

21,608

23,683

Net gain on sale of securities

485

197

78

Net change in valuation of financial instruments carried at fair value

59

1,704

(4,596

)

Total non-interest income

24,272

23,509

19,165

NON-INTEREST EXPENSE:

Salary and employee benefits

64,819

60,906

59,908

Less capitalized loan origination costs

(9,696

)

(9,415

)

(5,806

)

Occupancy and equipment

12,989

14,248

13,107

Information / computer data services

6,203

6,402

5,810

Payment and card processing services

4,326

3,960

4,240

Professional and legal expenses

3,328

5,643

1,919

Advertising and marketing

1,263

2,828

1,827

Deposit insurance expense

1,533

1,548

1,635

State/municipal business and use taxes

1,065

1,071

984

Real estate operations

(242

)

(283

)

100

Amortization of core deposit intangibles

1,711

1,865

2,001

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

(1,220

)

1,203

1,722

Miscellaneous

5,509

5,871

6,357

91,588

95,847

93,804

COVID-19 expenses

148

333

239

Merger and acquisition-related expenses

571

579

1,142

Total non-interest expense

92,307

96,759

95,185

Income before provision for income taxes

57,657

48,788

21,490

PROVISION FOR INCOME TAXES

10,802

9,831

4,608

NET INCOME

$

46,855

$

38,957

$

16,882

Earnings per share available to common shareholders:

Basic

$

1.34

$

1.11

$

0.48

Diluted

$

1.33

$

1.10

$

0.47

Cumulative dividends declared per common share

$

0.41

$

0.41

$

0.41

Weighted average common shares outstanding:

Basic

34,973,383

35,200,769

35,463,541

Diluted

35,303,483

35,425,810

35,640,463

(Decrease) increase in common shares outstanding

(423,857

)

632

(649,117

)


FINANCIAL CONDITION

Percentage Change

(in thousands except shares and per share data)

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Prior Qtr

Prior Yr Qtr

ASSETS

Cash and due from banks

$

296,184

$

311,899

$

211,013

(5.0

)%

40.4

%

Interest-bearing deposits

1,353,743

922,284

83,988

46.8

%

nm

Total cash and cash equivalents

1,649,927

1,234,183

295,001

33.7

%

459.3

%

Securities - trading

25,039

24,980

21,040

0.2

%

19.0

%

Securities - available for sale

2,989,760

2,322,593

1,608,224

28.7

%

85.9

%

Securities - held to maturity

441,857

421,713

437,846

4.8

%

0.9

%

Total securities

3,456,656

2,769,286

2,067,110

24.8

%

67.2

%

Federal Home Loan Bank stock

14,001

16,358

20,247

(14.4

)%

(30.8

)%

Loans held for sale

135,263

243,795

182,428

(44.5

)%

(25.9

)%

Loans receivable

9,947,697

9,870,982

9,285,744

0.8

%

7.1

%

Allowance for credit losses - loans

(156,054

)

(167,279

)

(130,488

)

(6.7

)%

19.6

%

Net loans receivable

9,791,643

9,703,703

9,155,256

0.9

%

7.0

%

Accrued interest receivable

49,214

46,617

40,732

5.6

%

20.8

%

Real estate owned held for sale, net

340

816

2,402

(58.3

)%

(85.8

)%

Property and equipment, net

161,268

164,556

175,235

(2.0

)%

(8.0

)%

Goodwill

373,121

373,121

373,121

%

%

Other intangibles, net

19,715

21,426

27,157

(8.0

)%

(27.4

)%

Bank-owned life insurance

191,388

191,830

193,140

(0.2

)%

(0.9

)%

Other assets

277,256

265,932

249,121

4.3

%

11.3

%

Total assets

$

16,119,792

$

15,031,623

$

12,780,950

7.2

%

26.1

%

LIABILITIES

Deposits:

Non-interest-bearing

$

5,994,693

$

5,492,924

$

4,107,262

9.1

%

46.0

%

Interest-bearing transaction and savings accounts

6,647,196

6,159,052

5,175,969

7.9

%

28.4

%

Interest-bearing certificates

906,978

915,320

1,166,306

(0.9

)%

(22.2

)%

Total deposits

13,548,867

12,567,296

10,449,537

7.8

%

29.7

%

Advances from Federal Home Loan Bank

100,000

150,000

247,000

(33.3

)%

(59.5

)%

Customer repurchase agreements and other borrowings

216,260

184,785

128,764

17.0

%

68.0

%

Subordinated notes, net

98,290

98,201

0.1

%

nm

Junior subordinated debentures at fair value

117,248

116,974

99,795

0.2

%

17.5

%

Accrued expenses and other liabilities

373,685

202,643

208,753

84.4

%

79.0

%

Deferred compensation

46,625

45,460

45,401

2.6

%

2.7

%

Total liabilities

14,500,975

13,365,359

11,179,250

8.5

%

29.7

%

SHAREHOLDERS’ EQUITY

Common stock

1,326,269

1,349,879

1,343,699

(1.7

)%

(1.3

)%

Retained earnings

279,582

247,316

177,922

13.0

%

57.1

%

Other components of shareholders’ equity

12,966

69,069

80,079

(81.2

)%

(83.8

)%

Total shareholders’ equity

1,618,817

1,666,264

1,601,700

(2.8

)%

1.1

%

Total liabilities and shareholders’ equity

$

16,119,792

$

15,031,623

$

12,780,950

7.2

%

26.1

%

Common Shares Issued:

Shares outstanding at end of period

34,735,343

35,159,200

35,102,459

Common shareholders’ equity per share (1)

$

46.60

$

47.39

$

45.63

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

$

35.29

$

36.17

$

34.23

Common shareholders’ tangible equity to tangible assets (2)

7.80

%

8.69

%

9.70

%

Consolidated Tier 1 leverage capital ratio

9.10

%

9.50

%

10.45

%


(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

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Prior Qtr

Prior Yr Qtr

Commercial real estate:

Owner-occupied

$

1,045,656

$

1,076,467

$

1,024,089

(2.9

)%

2.1

%

Investment properties

1,931,805

1,955,684

2,007,537

(1.2

)%

(3.8

)%

Small balance CRE

639,330

573,849

591,783

11.4

%

8.0

%

Multifamily real estate

433,775

428,223

400,206

1.3

%

8.4

%

Construction, land and land development:

Commercial construction

199,037

228,937

205,476

(13.1

)%

(3.1

)%

Multifamily construction

305,694

305,527

250,410

0.1

%

22.1

%

One- to four-family construction

542,840

507,810

534,956

6.9

%

1.5

%

Land and land development

266,730

248,915

232,506

7.2

%

14.7

%

Commercial business:

Commercial business

2,376,594

2,178,461

1,357,817

9.1

%

75.0

%

Small business scored

717,502

743,451

807,539

(3.5

)%

(11.1

)%

Agricultural business, including secured by farmland

262,410

299,949

330,257

(12.5

)%

(20.5

)%

One- to four-family residential

655,627

717,939

881,387

(8.7

)%

(25.6

)%

Consumer:

Consumer—home equity revolving lines of credit

466,132

491,812

521,618

(5.2

)%

(10.6

)%

Consumer—other

104,565

113,958

140,163

(8.2

)%

(25.4

)%

Total loans receivable

$

9,947,697

$

9,870,982

$

9,285,744

0.8

%

7.1

%

Restructured loans performing under their restructured terms

$

6,424

$

6,673

$

6,423

Loans 30 - 89 days past due and on accrual

$

19,233

$

12,291

$

39,974

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

$

42,444

$

36,131

$

61,101

Total delinquent loans / Total loans receivable

0.43

%

0.37

%

0.66

%


LOANS BY GEOGRAPHIC LOCATION

Percentage Change

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Prior Qtr

Prior Yr Qtr

Amount

Percentage

Amount

Amount

Washington

$

4,683,600

47.1

%

$

4,647,553

$

4,350,273

0.8

%

7.7

%

California

2,320,384

23.3

%

2,279,749

2,140,895

1.8

%

8.4

%

Oregon

1,801,104

18.1

%

1,792,156

1,664,652

0.5

%

8.2

%

Idaho

539,061

5.4

%

537,996

524,663

0.2

%

2.7

%

Utah

92,399

0.9

%

80,704

52,747

14.5

%

75.2

%

Other

511,149

5.2

%

532,824

552,514

(4.1

)%

(7.5

)%

Total loans receivable

$

9,947,697

100.0

%

$

9,870,982

$

9,285,744

0.8

%

7.1

%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending March 31, 2021, December 31, 2020, and March 31, 2020 (in thousands).

LOAN ORIGINATIONS

Quarters Ended

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Commercial real estate

$

199,294

$

93,838

$

76,359

Multifamily real estate

13,271

7,900

10,171

Construction and land

451,545

515,280

369,613

Commercial business:

Commercial business

168,049

133,112

199,873

SBA PPP

428,180

Agricultural business

27,267

11,552

31,261

One-to four-family residential

64,286

28,402

31,041

Consumer

131,671

97,416

67,357

Total loan originations (excluding loans held for sale)

$

1,483,563

$

887,500

$

785,675


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Quarters Ended

CHANGE IN THE

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

ALLOWANCE FOR CREDIT LOSSES - LOANS

Balance, beginning of period

$

167,279

$

167,965

$

100,559

Beginning balance adjustment for adoption of ASC 326

7,812

(Recapture)/provision for credit losses - loans

(8,035

)

(593

)

21,713

Recoveries of loans previously charged off:

Commercial real estate

24

31

167

Construction and land

100

One- to four-family real estate

113

194

148

Commercial business

979

2,444

205

Agricultural business, including secured by farmland

51

1,750

Consumer

296

90

96

1,512

2,810

2,366

Loans charged off:

Commercial real estate

(3,763

)

(1,375

)

(100

)

Multifamily real estate

(66

)

One- to four-family real estate

(64

)

Commercial business

(789

)

(1,019

)

(1,384

)

Agricultural business, including secured by farmland

(37

)

Consumer

(150

)

(472

)

(348

)

(4,702

)

(2,903

)

(1,962

)

Net charge-offs

(3,190

)

(93

)

404

Balance, end of period

$

156,054

$

167,279

$

130,488

Net charge-offs / Average loans receivable

(0.032

)%

(0.001

)%

0.004

%


ALLOCATION OF

ALLOWANCE FOR CREDIT LOSSES - LOANS

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Specific or allocated credit loss allowance:

Commercial real estate

$

59,411

$

57,791

$

29,339

Multifamily real estate

4,367

3,893

2,805

Construction and land

36,440

41,295

34,217

One- to four-family real estate

7,988

9,913

11,884

Commercial business

31,411

35,007

31,648

Agricultural business, including secured by farmland

4,617

4,914

4,513

Consumer

11,820

14,466

16,082

Total allowance for credit losses - loans

$

156,054

$

167,279

$

130,488

Allowance for credit losses - loans / Total loans receivable

1.57

%

1.69

1.41

%

Allowance for credit losses - loans / Non-performing loans

426

%

470

%

299

%


Quarters Ended

CHANGE IN THE

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS

Balance, beginning of period

$

13,297

$

12,094

$

2,716

Beginning balance adjustment for adoption of ASC 326

7,022

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

(1,220

)

1,203

1,722

Balance, end of period

$

12,077

$

13,297

$

11,460


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

NON-PERFORMING ASSETS

Loans on non-accrual status:

Secured by real estate:

Commercial

$

21,615

$

18,199

$

8,512

Construction and land

986

936

1,393

One- to four-family

4,456

3,556

3,045

Commercial business

4,194

5,407

25,027

Agricultural business, including secured by farmland

1,536

1,743

495

Consumer

2,244

2,719

1,812

35,031

32,560

40,284

Loans more than 90 days delinquent, still on accrual:

Secured by real estate:

Commercial

24

Construction and land

1,407

One- to four-family

1,524

1,899

1,089

Commercial business

37

1,025

77

Agricultural business, including secured by farmland

461

Consumer

130

320

1,561

3,054

3,378

Total non-performing loans

36,592

35,614

43,662

Real estate owned (REO)

340

816

2,402

Other repossessed assets

37

51

47

Total non-performing assets

$

36,969

$

36,481

$

46,111

Total non-performing assets to total assets

0.23

%

0.24

%

0.36

%


Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

LOANS BY CREDIT RISK RATING

Pass

$

9,584,429

$

9,494,147

$

9,095,264

Special Mention

51,692

36,598

64,406

Substandard

311,576

340,237

126,074

Total

$

9,947,697

$

9,870,982

$

9,285,744


Quarters Ended

REAL ESTATE OWNED

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Balance, beginning of period

$

816

$

1,795

$

814

Additions from loan foreclosures

1,588

Proceeds from dispositions of REO

(783

)

(1,555

)

Gain on sale of REO

307

603

Valuation adjustments in the period

(27

)

Balance, end of period

$

340

$

816

$

2,402


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

DEPOSIT COMPOSITION

Percentage Change

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Prior Qtr

Prior Yr Qtr

Non-interest-bearing

$

5,994,693

$

5,492,924

$

4,107,262

9.1

%

46.0

%

Interest-bearing checking

1,722,085

1,569,435

1,331,860

9.7

%

29.3

%

Regular savings accounts

2,597,731

2,398,482

1,997,265

8.3

%

30.1

%

Money market accounts

2,327,380

2,191,135

1,846,844

6.2

%

26.0

%

Total interest-bearing transaction and savings accounts

6,647,196

6,159,052

5,175,969

7.9

%

28.4

%

Total core deposits

12,641,889

11,651,976

9,283,231

8.5

%

36.2

%

Interest-bearing certificates

906,978

915,320

1,166,306

(0.9

)%

(22.2

)%

Total deposits

$

13,548,867

$

12,567,296

$

10,449,537

7.8

%

29.7

%


GEOGRAPHIC CONCENTRATION OF DEPOSITS

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Percentage Change

Amount

Percentage

Amount

Amount

Prior Qtr

Prior Yr Qtr

Washington

$

7,504,389

55.4

%

$

7,058,404

$

6,037,864

6.3

%

24.3

%

Oregon

2,929,027

21.6

%

2,604,908

2,093,738

12.4

%

39.9

%

California

2,401,299

17.7

%

2,237,949

1,828,064

7.3

%

31.4

%

Idaho

714,152

5.3

%

666,035

489,871

7.2

%

45.8

%

Total deposits

$

13,548,867

100.0

%

$

12,567,296

$

10,449,537

7.8

%

29.7

%


INCLUDED IN TOTAL DEPOSITS

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Public non-interest-bearing accounts

$

151,850

$

175,352

$

115,354

Public interest-bearing transaction & savings accounts

169,192

127,523

130,958

Public interest-bearing certificates

51,021

59,127

48,232

Total public deposits

$

372,063

$

362,002

$

294,544

Total brokered deposits

$

$

$

250,977


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 MARCH 31, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

Banner Corporation-consolidated:

Total capital to risk-weighted assets

$

1,594,230

14.74

%

$

865,281

8.00

%

$

1,081,602

10.00

%

Tier 1 capital to risk-weighted assets

1,358,958

12.56

%

648,961

6.00

%

648,961

6.00

%

Tier 1 leverage capital to average assets

1,358,958

9.10

%

597,434

4.00

%

n/a

n/a

Common equity tier 1 capital to risk-weighted assets

1,215,458

11.24

%

486,721

4.50

%

n/a

n/a

Banner Bank:

Total capital to risk-weighted assets

1,473,846

13.63

%

865,096

8.00

%

1,081,370

10.00

%

Tier 1 capital to risk-weighted assets

1,338,602

12.38

%

648,822

6.00

%

865,096

8.00

%

Tier 1 leverage capital to average assets

1,338,602

8.95

%

598,565

4.00

%

748,207

5.00

%

Common equity tier 1 capital to risk-weighted assets

1,338,602

12.38

%

486,616

4.50

%

702,890

6.50

%


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Quarters Ended

March 31, 2021

December 31, 2020

March 31, 2020

Average Balance

Interest and Dividends

Yield / Cost(3)

Average Balance

Interest and Dividends

Yield / Cost(3)

Average Balance

Interest and Dividends

Yield / Cost(3)

Interest-earning assets:

Held for sale loans

$

119,341

$

925

3.14

%

$

110,414

$

976

3.52

%

$

152,627

$

1,520

4.01

%

Mortgage loans

7,144,770

80,580

4.57

%

7,251,101

84,634

4.64

%

7,310,115

93,061

5.12

%

Commercial/agricultural loans

2,691,554

26,711

4.02

%

2,752,352

29,145

4.21

%

1,884,006

22,959

4.90

%

Consumer and other loans

127,469

1,947

6.19

%

135,498

2,057

6.04

%

163,098

2,595

6.40

%

Total loans(1)(3)

10,083,134

110,163

4.43

%

10,249,365

116,812

4.53

%

9,509,846

120,135

5.08

%

Mortgage-backed securities

1,953,820

9,472

1.97

%

1,429,635

7,536

2.10

%

1,354,585

9,236

2.74

%

Other securities

1,048,856

6,687

2.59

%

975,166

6,634

2.71

%

458,116

3,310

2.91

%

Equity securities

1,742

%

234,822

64

0.11

%

%

Interest-bearing deposits with banks

1,032,138

262

0.10

%

611,234

219

0.14

%

92,659

393

1.71

%

FHLB stock

15,952

161

4.09

%

16,361

162

3.94

%

26,522

322

4.88

%

Total investment securities (3)

4,052,508

16,582

1.66

%

3,267,218

14,615

1.78

%

1,931,882

13,261

2.76

%

Total interest-earning assets

14,135,642

126,745

3.64

%

13,516,583

131,427

3.87

%

11,441,728

133,396

4.69

%

Non-interest-earning assets

1,237,281

1,349,055

1,193,256

Total assets

$

15,372,923

$

14,865,638

$

12,634,984

Deposits:

Interest-bearing checking accounts

$

1,616,824

315

0.08

%

$

1,483,183

315

0.08

%

$

1,266,647

469

0.15

%

Savings accounts

2,486,820

521

0.08

%

2,375,015

691

0.12

%

2,039,857

1,755

0.35

%

Money market accounts

2,242,748

775

0.14

%

2,165,960

1,047

0.19

%

1,743,118

2,439

0.56

%

Certificates of deposit

913,053

1,998

0.89

%

916,286

2,339

1.02

%

1,124,994

4,087

1.46

%

Total interest-bearing deposits

7,259,445

3,609

0.20

%

6,940,444

4,392

0.25

%

6,174,616

8,750

0.57

%

Non-interest-bearing deposits

5,663,820

%

5,499,240

%

3,965,380

%

Total deposits

12,923,265

3,609

0.11

%

12,439,684

4,392

0.14

%

10,139,996

8,750

0.35

%

Other interest-bearing liabilities:

FHLB advances

144,444

934

2.62

%

150,000

987

2.62

%

405,429

2,064

2.05

%

Other borrowings

202,930

109

0.22

%

187,560

121

0.26

%

124,771

116

0.37

%

Junior subordinated debentures and subordinated notes

247,944

2,208

3.61

%

247,944

2,216

3.56

%

147,944

1,477

4.02

%

Total borrowings

595,318

3,251

2.21

%

585,504

3,324

2.26

%

678,144

3,657

2.17

%

Total funding liabilities

13,518,583

6,860

0.21

%

13,025,188

7,716

0.24

%

10,818,140

12,407

0.46

%

Other non-interest-bearing liabilities(2)

207,560

195,965

212,162

Total liabilities

13,726,143

13,221,153

11,030,302

Shareholders’ equity

1,646,780

1,644,485

1,604,682

Total liabilities and shareholders’ equity

$

15,372,923

$

14,865,638

$

12,634,984

Net interest income/rate spread (tax equivalent)

$

119,885

3.43

%

$

123,711

3.63

%

$

120,989

4.23

%

Net interest margin (tax equivalent)

3.44

%

3.64

%

4.25

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(2,224

)

(2,274

)

(1,731

)

Net interest income and margin, as reported

$

117,661

3.38

%

$

121,437

3.57

%

$

119,258

4.19

%

Additional Key Financial Ratios:

Return on average assets

1.24

%

1.04

%

0.54

%

Return on average equity

11.54

%

9.42

%

4.23

%

Average equity/average assets

10.71

%

11.06

%

12.70

%

Average interest-earning assets/average interest-bearing liabilities

179.96

%

179.60

%

166.97

%

Average interest-earning assets/average funding liabilities

104.56

%

103.77

%

105.76

%

Non-interest income/average assets

0.64

%

0.63

%

0.61

%

Non-interest expense/average assets

2.44

%

2.59

%

3.03

%

Efficiency ratio(4)

65.04

%

66.76

%

68.76

%

Adjusted efficiency ratio(5)

63.85

%

64.31

%

62.26

%

(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 $1.2 million, $1.3 million, and $1.2 million for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $985,000, $1.0 million, and $522,000 for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, 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

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Net interest income before (recapture)/provision for credit losses

$

117,661

$

121,437

$

119,258

Total non-interest income

24,272

23,509

19,165

Total GAAP revenue

141,933

144,946

138,423

Exclude net gain on sale of securities

(485

)

(197

)

(78

)

Exclude net change in valuation of financial instruments carried at fair value

(59

)

(1,704

)

4,596

Adjusted revenue (non-GAAP)

$

141,389

$

143,045

$

142,941


ADJUSTED EARNINGS

Quarters Ended

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Net income (GAAP)

$

46,855

$

38,957

$

16,882

Exclude net gain on sale of securities

(485

)

(197

)

(78

)

Exclude net change in valuation of financial instruments carried at fair value

(59

)

(1,704

)

4,596

Exclude merger and acquisition-related expenses

571

579

1,142

Exclude COVID-19 expenses

148

333

239

Exclude related net tax (benefit) expense

(42

)

237

(1,405

)

Total adjusted earnings (non-GAAP)

$

46,988

$

38,205

$

21,376

Diluted earnings per share (GAAP)

$

1.33

$

1.10

$

0.47

Diluted adjusted earnings per share (non-GAAP)

$

1.33

$

1.08

$

0.60


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

ADJUSTED EFFICIENCY RATIO

Quarters Ended

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Non-interest expense (GAAP)

$

92,307

$

96,759

$

95,185

Exclude merger and acquisition-related expenses

(571

)

(579

)

(1,142

)

Exclude COVID-19 expenses

(148

)

(333

)

(239

)

Exclude CDI amortization

(1,711

)

(1,865

)

(2,001

)

Exclude state/municipal tax expense

(1,065

)

(1,071

)

(984

)

Exclude REO operations

242

283

(100

)

Exclude recapture/(provision) for credit losses - unfunded loan commitments

1,220

(1,203

)

(1,722

)

Adjusted non-interest expense (non-GAAP)

$

90,274

$

91,991

$

88,997

Net interest income before (recapture)/provision for credit losses (GAAP)

$

117,661

$

121,437

$

119,258

Non-interest income (GAAP)

24,272

23,509

19,165

Total revenue

141,933

144,946

138,423

Exclude net gain on sale of securities

(485

)

(197

)

(78

)

Exclude net change in valuation of financial instruments carried at fair value

(59

)

(1,704

)

4,596

Adjusted revenue (non-GAAP)

$

141,389

$

143,045

$

142,941

Efficiency ratio (GAAP)

65.04

%

66.76

%

68.76

%

Adjusted efficiency ratio (non-GAAP)

63.85

%

64.31

%

62.26

%


TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS

Mar 31, 2021

Dec 31, 2020

Mar 31, 2020

Shareholders’ equity (GAAP)

$

1,618,817

$

1,666,264

$

1,601,700

Exclude goodwill and other intangible assets, net

392,836

394,547

400,278

Tangible common shareholders’ equity (non-GAAP)

$

1,225,981

$

1,271,717

$

1,201,422

Total assets (GAAP)

$

16,119,792

$

15,031,623

$

12,780,950

Exclude goodwill and other intangible assets, net

392,836

394,547

400,278

Total tangible assets (non-GAAP)

$

15,726,956

$

14,637,076

$

12,380,672

Common shareholders’ equity to total assets (GAAP)

10.04

%

11.09

%

12.53

%

Tangible common shareholders’ equity to tangible assets (non-GAAP)

7.80

%

8.69

%

9.70

%

TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE

Tangible common shareholders’ equity (non-GAAP)

$

1,225,981

$

1,271,717

$

1,201,422

Common shares outstanding at end of period

34,735,343

35,159,200

35,102,459

Common shareholders’ equity (book value) per share (GAAP)

$

46.60

$

47.39

$

45.63

Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)

$

35.29

$

36.17

$

34.23