Banner Corporation Reports Net Income of $39.0 Million, or $1.10 Per Diluted Share, for Fourth Quarter 2020; Earns $115.9 Million, or $3.26 Per Diluted Share, in 2020; Declares Quarterly Cash Dividend of $0.41 Per Share

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

WALLA WALLA, Wash., Jan. 21, 2021 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank and Islanders Bank, today reported net income of $39.0 million, or $1.10 per diluted share, for the fourth quarter 2020, a 7% increase compared to $36.5 million, or $1.03 per diluted share, in the preceding quarter and a 16% increase compared to $33.7 million, or $0.95 per diluted share, in the fourth quarter of 2019. Net income for 2020 was $115.9 million, or $3.26 per diluted share, compared to $146.3 million, or $4.18 per diluted share for 2019. Full year 2020 results include $64.3 million in provision for credit losses primarily resulting from the COVID-19 pandemic, compared to $10.0 million in provision for credit losses in 2019. The 2020 results also include $2.1 million of merger and acquisition-related expenses, compared to $7.5 million of merger and acquisition-related expenses for 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 February 16, 2021, to common shareholders of record on February 4, 2021.

“The historic events of 2020 brought serious economic, health and personal challenges to everyone in our footprint and beyond, and our team of professional bankers rose to meet those challenges to support our clients and the communities we serve,” said Mark Grescovich, President and CEO. “Our core performance for the fourth quarter and for the year reflects the continued execution of our super community bank strategy. That strategy supports growing new client relationships, adding to our core funding position by growing core deposits, and promoting client loyalty and advocacy through our responsive service model.”

“To provide support for our clients, we have made available several assistance programs,” continued Grescovich. “During the year, Banner committed $1.5 million to selected Community Development Financial Institutions in support of minority-owned small businesses as well as businesses located in economically disadvantaged rural and urban communities. Additionally, we funded SBA Paycheck Protection Program or PPP loans totaling nearly $1.15 billion to 9,103 businesses as of year-end, and we are actively participating in the latest SBA PPP loan program that opened in mid-January 2021. Further, Banner provided deferred payments, or waived interest, for borrowers that were the most impacted by the COVID-19 pandemic. We will continue to live by our core values, summed up as doing the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of capital through all economic cycles and changing events.”

“Due to the decrease in loan balances as well as an improvement in the forecasted economic indicators utilized during the current quarter, we recorded a $601,000 recapture to our provision for credit losses during the current quarter. This compares to a $13.6 million provision for credit losses during the preceding quarter and a $4.0 million provision for loan losses in the fourth quarter a year ago,” said Grescovich. The allowance for credit losses - loans was 1.69% of total loans and 470% of non-performing loans at December 31, 2020, compared to 1.65% of total loans and 482% of non-performing loans at September 30, 2020.

At December 31, 2020, Banner Corporation had $15.03 billion in assets, $9.70 billion in net loans and $12.57 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. The deadline for PPP loan applications to the SBA under the original PPP was August 8, 2020. Under this program Banner funded 9,103 applications totaling $1.15 billion of loans in its service area and began processing applications for loan forgiveness in the fourth quarter of 2020. As of December 31, 2020, Banner had received SBA forgiveness for 595 PPP loans totaling $112.3 million. In January, Banner began accepting and processing loan applications under the second PPP program enacted in December 2020.

  • 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. At December 31, 2020, Banner had 158 loans totaling $75.4 million still on deferral. Of the loans still on deferral, 26 loans totaling $33.9 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 December 31, 2020 pursuant to applicable accounting and regulatory guidance.

  • Allowance for Credit Losses - Loans. Banner recorded a recapture of provision for credit losses of $601,000 for the fourth quarter of 2020. This compares to a $13.6 million provision for credit losses recorded in the preceding quarter and a $4.0 million provision for loan losses recorded in the fourth quarter a year ago. The recapture of provision for the current quarter primarily reflects the decrease in loan balances while the provision for credit losses recorded in the preceding quarter primarily reflected the deterioration in forecasted economic indicators as a result of the COVID-19 pandemic and for both periods the economic outlook that existed at their respective quarter end.

  • Branch Operations, IT Changes and One-Time Expenses. Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to help safeguard 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 Banner’s network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $333,000 of related costs during the fourth quarter of 2020, compared to $778,000 of related costs in the third quarter of 2020. The COVID-19 pandemic response expenses for 2020 were $3.5 million.

  • Capital Management. At December 31, 2020, the tangible common shareholders’ equity to tangible assets* ratio was 8.69% and Banner’s 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. 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.

Fourth Quarter 2020 Highlights

  • Revenues decreased to $144.9 million, compared to $149.2 million in the preceding quarter, and increased 4% when compared to $139.8 million in the fourth quarter a year ago.

  • Net interest income, before the provision for credit losses, increased to $121.4 million in the fourth quarter of 2020, compared to $121.0 million in the preceding quarter and $119.5 million in the fourth quarter a year ago.

  • Net interest margin was 3.57%, compared to 3.65% in the preceding quarter and 4.20% in the fourth quarter a year ago.

  • Net interest margin on a tax equivalent basis was 3.64%, compared to 3.72% in the preceding quarter and 4.26% in the fourth quarter a year ago.

  • Mortgage banking revenues decreased 35% to $10.7 million, compared to $16.6 million in the preceding quarter, and increased 71% compared to $6.2 million in the fourth quarter a year ago.

  • Return on average assets was 1.04%, compared to 1.01% in the preceding quarter and 1.07% in the fourth quarter a year ago.

  • Net loans receivable decreased to $9.70 billion at December 31, 2020, compared to $10.00 billion at September 30, 2020, and increased 5% when compared to $9.20 billion at December 31, 2019.

  • Non-performing assets decreased to $36.5 million, or 0.24% of total assets, at December 31, 2020, compared to $36.7 million, or 0.25% of total assets in the preceding quarter, and decreased from $40.5 million, or 0.32% of total assets, at December 31, 2019.

  • The allowance for credit losses - loans was $167.3 million, or 1.69% of total loans receivable, as of December 31, 2020, compared to $168.0 million, or 1.65% of total loans receivable as of September 30, 2020 and $100.6 million or 1.08% of total loans receivable as of December 31, 2019.

  • A $1.2 million provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $13.3 million as of December 31, 2020, compared to $12.1 million as of September 30, 2020 and $2.7 million as of December 31, 2019.

  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 3% to $11.65 billion at December 31, 2020, compared to $11.30 billion at September 30, 2020, and increased 31% compared to $8.93 billion a year ago. Core deposits represented 93% of total deposits at December 31, 2020.

  • Dividends to shareholders were $0.41 per share in the quarter ended December 31, 2020.

  • Common shareholders’ equity per share increased 1% to $47.39 at December 31, 2020, compared to $46.83 at the preceding quarter end, and increased 6% from $44.59 a year ago.

  • Tangible common shareholders’ equity per share* increased 2% to $36.17 at December 31, 2020, compared to $35.56 at the preceding quarter end, and increased 9% from $33.33 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 December 11, 2020, Banner completed the consolidation of 15 branches and on September 25, 2020, Banner completed the consolidation of six branches. As a result, Banner recorded expenses associated with these branch consolidations of $1.7 million and $2.1 million, during the fourth quarter of 2020 and year ended December 31, 2020, respectively. Client adoption of mobile and digital banking accelerated beginning in the second quarter 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.

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 during 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 acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner. During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner’s core systems and closure of overlapping branches.

Income Statement Review

Net interest income, before the provision for credit losses, was $121.4 million in the fourth quarter of 2020, compared to $121.0 million in the preceding quarter and $119.5 million in the fourth quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.64% for the fourth quarter of 2020, a 8 basis-point decrease compared to 3.72% in the preceding quarter and a 62 basis-point decrease compared to 4.26% in the fourth quarter a year ago.

“The low interest rate environment continues to put downward pressure on loan yields. Additionally, the impact of growth in core deposits, resulting in significant growth in low yielding short term investments, adversely impacted our net interest margin,” said Grescovich. Acquisition accounting adjustments added five basis points to the net interest margin in the current quarter, seven basis points in the preceding quarter and eight basis points in the fourth quarter a year ago. The total purchase discount for acquired loans was $16.1 million at December 31, 2020, compared to $17.9 million at September 30, 2020, and $25.0 million at December 31, 2019. For the year ended December 31, 2020, Banner’s net interest margin on a tax equivalent basis was 3.85% compared to 4.35% in 2019.

Average interest-earning asset yields decreased 11 basis points to 3.87% in the fourth quarter compared to 3.98% for the preceding quarter and decreased 88 basis points compared to 4.75% in the fourth quarter a year ago. Average loan yields increased six basis points to 4.53% compared to 4.47% in the preceding quarter and decreased 65 basis points compared to 5.18% in the fourth quarter a year ago. The increase in loan yields during the current quarter compared to the preceding quarter was primarily the result of the decline in low yielding SBA PPP loans due to loan repayments from SBA loan forgiveness commencing in the fourth quarter. Loan discount accretion added seven basis points to loan yields in the fourth quarter of 2020, compared to nine basis points in the preceding quarter and 11 basis points in the fourth quarter a year ago. Deposit costs were 0.14% in the fourth quarter of 2020, a three basis-point decrease compared to the preceding quarter and a 26 basis-point decrease compared to the fourth 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 0.24% during the fourth quarter of 2020, a three basis-point decrease compared to the preceding quarter and a 28 basis-point decrease compared to the fourth quarter a year ago.

Banner recorded a $601,000 recapture to its provision for credit losses in the current quarter, compared to a $13.6 million provision for credit losses in the prior quarter and a $4.0 million provision for loan losses in the fourth quarter a year ago, as calculated under the prior incurred loss methodology. The recapture of provision for the current quarter primarily reflects the decrease in loan balances while the provision for credit losses recorded in the preceding quarter primarily reflected the deterioration in forecasted economic indicators as a result of the COVID-19 pandemic and for both periods the economic outlook that existed at their respective quarter end.

Total non-interest income was $23.5 million in the fourth quarter of 2020, compared to $28.2 million in the preceding quarter and $20.3 million in the fourth quarter a year ago. Deposit fees and other service charges were $8.3 million in the fourth quarter of 2020, compared to $8.7 million in the preceding quarter and $9.6 million in the fourth quarter a year ago. The decrease in deposit fees and other service charges from the fourth 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, decreased to $10.7 million in the fourth quarter, compared to $16.6 million in the preceding quarter and increased from $6.2 million in the fourth quarter of 2019. The lower mortgage banking revenue quarter-over-quarter primarily reflects seasonal volume decreases as well as a decrease in the gain on sale spread on one- to four-family held for sale loans along with lower multifamily loan sales. The increases compared to the fourth 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 an increase in the gain on sale spreads on one- to four-family held for sale loans partially offset by lower gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 51% of one- to four-family mortgage loan originations in the fourth quarter of 2020, compared to 56% in both the prior quarter and in the fourth quarter of 2019. For the year ended December 31, 2020, total non-interest income increased 20% to $98.6 million, compared to $81.9 million in 2019.

Banner’s fourth quarter 2020 results included a $1.7 million net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading as a result of the tightening of market spreads during the quarter, and a $197,000 net gain on the sale of securities. In the preceding quarter, results included a $37,000 net gain for fair value adjustments and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of Visa Class B shares held by Banner. In the fourth quarter a year ago, results included a $36,000 net loss for fair value adjustments and a $62,000 net gain on the sale of securities.

Banner’s total revenue decreased 3% to $144.9 million for the fourth quarter of 2020, compared to $149.2 million in the preceding quarter, and increased 4% compared to $139.8 million in the fourth quarter a year ago. For the year, total revenues increased 5% to $579.9 million compared to $550.9 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 $143.0 million in the fourth quarter of 2020, compared to $148.6 million in the preceding quarter and $139.7 million in the fourth quarter of 2019. For the year ended December 31, 2020, adjusted revenue* was $579.6 million, compared to $551.0 million for the year ended December 31, 2019.

Total non-interest expense was $96.8 million in the fourth quarter of 2020, compared to $91.6 million in the preceding quarter and $93.7 million in the fourth quarter of 2019. The increase in non-interest expense for the current quarter compared to the prior quarter and the fourth quarter a year ago reflects expenses associated with branch consolidations, primarily included in the salary and employee benefits and occupancy and equipment expense categories. The increase in non-interest expense for the current quarter compared to the prior quarter and the same quarter a year ago also reflects a $2.5 million accrual related to pending litigation as well as an increase in advertising and marketing expenses. The year-over-year quarterly 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 $1.2 million of provision for credit losses - unfunded loan commitments compared to a $1.5 million provision for the prior quarter and no provision for the year ago quarter. The year-over-year quarterly increase also reflects increased salary and employee benefits expense, partially offset by increased capitalized loan origination costs and lower miscellaneous non-interest expense as the fourth quarter of 2019 included $735,000 of expense related to the prepayment of $150 million of FHLB advances. The year-over-year quarterly decrease in merger and acquisition-related expenses partially offset these increases. Merger and acquisition-related expenses were $579,000 for the fourth quarter of 2020, compared to $5,000 for the preceding quarter and $4.4 million in the fourth quarter a year ago. For the year, total non-interest expense was $373.1 million, compared to $357.7 million for the year 2019. Banner’s efficiency ratio was 66.76% for the current quarter, compared to 61.35% in the preceding quarter and 67.03% in the year ago quarter. Banner’s adjusted efficiency ratio* was 64.31% for the current quarter, compared to 58.02% in the preceding quarter and 61.19% in the year ago quarter.

For the fourth quarter of 2020, Banner had $9.8 million in state and federal income tax expense for an effective tax rate of 20.2%, 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 3% to $15.03 billion at December 31, 2020, compared to $14.64 billion at September 30, 2020, and increased 19% when compared to $12.60 billion at December 31, 2019. The total of securities and interest-bearing deposits held at other banks was $3.69 billion at December 31, 2020, compared to $2.63 billion at September 30, 2020 and $1.89 billion at December 31, 2019. The average effective duration of Banner's securities portfolio was approximately 3.6 years at December 31, 2020, compared to 3.5 years at December 31, 2019.

Net loans receivable decreased 3% to $9.70 billion at December 31, 2020, compared to $10.00 billion at September 30, 2020, and increased 5% when compared to $9.20 billion at December 31, 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 December 31, 2020. Commercial real estate and multifamily real estate loans decreased to $4.03 billion at December 31, 2020, compared to $4.07 billion at September 30, 2020, and increased 1% compared to $4.01 billion a year ago. Commercial business loans decreased 6% to $2.92 billion at December 31, 2020, primarily reflecting SBA repayments from the forgiveness of SBA PPP loans during the quarter, compared to $3.11 billion at September 30, 2020, and increased 37% compared to $2.14 billion a year ago primarily due to SBA PPP loans. Agricultural business loans decreased to $299.9 million at December 31, 2020, compared to $326.2 million three months earlier and $337.3 million a year ago. Total construction, land and land development loans were $1.29 billion at December 31, 2020, a 2% increase from $1.27 billion at September 30, 2020, and a 5% increase compared to $1.23 billion a year earlier. Consumer loans decreased to $605.8 million at December 31, 2020, compared to $622.8 million at September 30, 2020, and $664.3 million a year ago. One- to four-family loans decreased to $717.9 million at December 31, 2020, reflecting held for investment loans being refinanced and sold as held for sale loans, compared to $771.4 million at September 30, 2020, and $925.5 million a year ago.

Loans held for sale were $243.8 million at December 31, 2020, compared to $185.9 million at September 30, 2020, and $210.4 million at December 31, 2019. The volume of one- to four- family residential mortgage loans sold was $356.6 million in the current quarter, compared to $327.7 million in the preceding quarter and $268.1 million in the fourth quarter a year ago. During the fourth quarter of 2020, Banner sold $10.4 million in multifamily loans compared to $108.6 million in the preceding quarter and $103.4 million in the fourth quarter a year ago.

Total deposits increased 3% to $12.57 billion at December 31, 2020, compared to $12.22 billion at September 30, 2020, and increased 25% when compared to $10.05 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. Non-interest-bearing account balances increased 1% to $5.49 billion at December 31, 2020, compared to $5.41 billion at September 30, 2020, and increased 39% compared to $3.95 billion a year ago. Core deposits increased 3% from the prior quarter and increased 31% compared to a year ago and represented 93% of total deposits at both December 31, 2020 and September 30, 2020. Certificates of deposit decreased slightly to $915.3 million at December 31, 2020, compared to $915.4 million at September 30, 2020, and decreased 18% compared to $1.12 billion a year earlier. Banner had no brokered deposits at December 31, 2020 or September 30, 2020, compared to $202.9 million a year ago. FHLB borrowings totaled $150.0 million at both December 31, 2020 and September 30, 2020, and $450.0 million a year ago.

At December 31, 2020, total common shareholders’ equity was $1.67 billion, or 11.09% of assets, compared to $1.65 billion or 11.25% of assets at September 30, 2020, and $1.59 billion or 12.65% of assets a year ago. At December 31, 2020, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.27 billion, or 8.69% of tangible assets*, compared to $1.25 billion, or 8.78% of tangible assets, at September 30, 2020, and $1.19 billion, or 9.77% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $36.17 at December 31, 2020, compared to $33.33 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 December 31, 2020, Banner's common equity Tier 1 capital ratio was 11.25%, its Tier 1 leverage capital to average assets ratio was 9.50%, and its total capital to risk-weighted assets ratio was 14.73%.

Credit Quality

The allowance for credit losses - loans was $167.3 million at December 31, 2020, or 1.69% of total loans receivable outstanding and 470% of non-performing loans, compared to $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, and $100.6 million at December 31, 2019, or 1.08% of total loans receivable outstanding and 254% 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 $13.3 million at December 31, 2020, compared to $12.1 million at September 30, 2020 and $2.7 million at December 31, 2019. Net loan charge-offs totaled $93,000 in the fourth quarter of 2020, compared to net loan charge-offs of $2.0 million in the preceding quarter and $1.2 million of net charge-offs in the fourth quarter a year ago. Banner recorded a $601,000 recapture of provision for credit losses in the current quarter, compared to a $13.6 million provision for credit losses in the prior quarter and a $4.0 million provision for loan losses in the year ago quarter. The recapture of provision for the current quarter primarily reflects the decrease in loan balances while the provision for credit losses recorded in the preceding quarter primarily reflected the deterioration in forecasted economic indicators, as a result of the COVID-19 pandemic, and for both periods the economic outlook that existed at their respective quarter end. Non-performing loans were $35.6 million at December 31, 2020, compared to $34.8 million at September 30, 2020, and $39.6 million a year ago. Real estate owned and other repossessed assets were $867,000 at December 31, 2020, compared to $1.8 million at September 30, 2020, and $936,000 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 December 31, 2020, the total purchase discount for acquired loans was $16.1 million.

Banner’s total substandard loans were $340.2 million at December 31, 2020, compared to $423.2 million at September 30, 2020, and $113.4 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 $36.5 million, or 0.24% of total assets, at December 31, 2020, compared to $36.7 million, or 0.25% of total assets, at September 30, 2020, and $40.5 million, or 0.32% of total assets, a year ago.

Conference Call

Banner will host a conference call on Friday, January 22, 2021, at 8:00 a.m. PST, to discuss its fourth quarter and 2020 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 10150695, or at www.bannerbank.com.

About the Company

Banner Corporation is a $15.03 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

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


RESULTS OF OPERATIONS

Quarters Ended

Twelve Months Ended

(in thousands except shares and per share data)

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Dec 31, 2020

Dec 31, 2019

INTEREST INCOME:

Loans receivable

$

115,545

$

116,716

$

120,915

$

466,360

$

471,473

Mortgage-backed securities

7,438

7,234

8,924

31,792

38,640

Securities and cash equivalents

6,170

5,631

3,570

20,994

15,574

129,153

129,581

133,409

519,146

525,687

INTEREST EXPENSE:

Deposits

4,392

5,179

9,950

25,015

37,630

Federal Home Loan Bank advances

987

988

2,281

5,023

12,234

Other borrowings

121

128

121

603

330

Junior subordinated debentures and subordinated notes

2,216

2,260

1,566

7,204

6,574

7,716

8,555

13,918

37,845

56,768

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

121,437

121,026

119,491

481,301

468,919

(RECAPTURE)/PROVISION FOR CREDIT LOSSES

(601

)

13,641

4,000

64,316

10,000

Net interest income

122,038

107,385

115,491

416,985

458,919

NON-INTEREST INCOME:

Deposit fees and other service charges

8,293

8,742

9,637

34,384

46,632

Mortgage banking operations

10,690

16,562

6,248

51,581

22,215

Bank-owned life insurance

1,319

1,286

1,170

5,972

4,645

Miscellaneous

1,306

951

3,201

6,323

8,624

21,608

27,541

20,256

98,260

82,116

Net gain on sale of securities

197

644

62

1,012

33

Net change in valuation of financial instruments carried at fair value

1,704

37

(36

)

(656

)

(208

)

Total non-interest income

23,509

28,222

20,282

98,616

81,941

NON-INTEREST EXPENSE:

Salary and employee benefits

60,906

61,171

57,050

245,400

226,409

Less capitalized loan origination costs

(9,415

)

(8,517

)

(8,797

)

(34,848

)

(28,934

)

Occupancy and equipment

14,248

13,022

13,377

53,362

52,390

Information / computer data services

6,402

6,090

6,202

24,386

22,458

Payment and card processing services

3,960

4,044

4,638

16,095

16,993

Professional and legal expenses

5,643

2,368

2,262

12,093

9,736

Advertising and marketing

2,828

1,105

2,021

6,412

7,836

Deposit insurance expense

1,548

1,628

1,608

6,516

2,840

State/municipal business and use taxes

1,071

1,196

917

4,355

3,880

Real estate operations

(283

)

(11

)

40

(190

)

303

Amortization of core deposit intangibles

1,865

1,864

2,061

7,732

8,151

Provision for credit losses - unfunded loan commitments

1,203

1,539

3,559

Miscellaneous

5,871

5,285

7,892

22,712

28,122

95,847

90,784

89,271

367,584

350,184

COVID-19 expenses

333

778

3,502

Merger and acquisition-related expenses

579

5

4,419

2,062

7,544

Total non-interest expense

96,759

91,567

93,690

373,148

357,728

Income before provision for income taxes

48,788

44,040

42,083

142,453

183,132

PROVISION FOR INCOME TAXES

9,831

7,492

8,428

26,525

36,854

NET INCOME

$

38,957

$

36,548

$

33,655

$

115,928

$

146,278

Earnings per share available to common shareholders:

Basic

$

1.11

$

1.04

$

0.96

$

3.29

$

4.20

Diluted

$

1.10

$

1.03

$

0.95

$

3.26

$

4.18

Cumulative dividends declared per common share

$

0.41

$

0.41

$

1.41

$

1.23

$

2.64

Weighted average common shares outstanding:

Basic

35,200,769

35,193,109

35,188,399

35,264,252

34,868,434

Diluted

35,425,810

35,316,679

35,316,736

35,528,848

34,967,684

Increase (decrease) in common shares outstanding

632

669

1,578,219

(592,376

)

568,804


FINANCIAL CONDITION

Percentage Change

(in thousands except shares and per share data)

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Prior Qtr

Prior Yr Qtr

ASSETS

Cash and due from banks

$

311,899

$

289,144

$

234,359

7.9

%

33.1

%

Interest-bearing deposits

922,284

416,394

73,376

121.5

%

1,156.9

%

Total cash and cash equivalents

1,234,183

705,538

307,735

74.9

%

301.1

%

Securities - trading

24,980

23,276

25,636

7.3

%

(2.6

)

%

Securities - available for sale

2,322,593

1,758,384

1,551,557

32.1

%

49.7

%

Securities - held to maturity

421,713

429,033

236,094

(1.7

)

%

78.6

%

Total securities

2,769,286

2,210,693

1,813,287

25.3

%

52.7

%

Equity securities

450,255

(100.0

)

%

nm

Federal Home Loan Bank stock

16,358

16,363

28,342

%

(42.3

)

%

Loans held for sale

243,795

185,938

210,447

31.1

%

15.8

%

Loans receivable

9,870,982

10,163,917

9,305,357

(2.9

)

%

6.1

%

Allowance for credit losses - loans

(167,279

)

(167,965

)

(100,559

)

(0.4

)

%

66.3

%

Net loans receivable

9,703,703

9,995,952

9,204,798

(2.9

)

%

5.4

%

Accrued interest receivable

46,617

48,321

37,962

(3.5

)

%

22.8

%

Real estate owned held for sale, net

816

1,795

814

(54.5

)

%

0.2

%

Property and equipment, net

164,556

171,576

178,008

(4.1

)

%

(7.6

)

%

Goodwill

373,121

373,121

373,121

%

%

Other intangibles, net

21,426

23,291

29,158

(8.0

)

%

(26.5

)

%

Bank-owned life insurance

191,830

191,755

192,088

%

(0.1

)

%

Other assets

265,932

267,477

228,271

(0.6

)

%

16.5

%

Total assets

$

15,031,623

$

14,642,075

$

12,604,031

2.7

%

19.3

%

LIABILITIES

Deposits:

Non-interest-bearing

5,492,924

$

5,412,570

$

3,945,000

1.5

%

39.2

%

Interest-bearing transaction and savings accounts

6,159,052

5,887,419

4,983,238

4.6

%

23.6

%

Interest-bearing certificates

915,320

915,352

1,120,403

%

(18.3

)

%

Total deposits

12,567,296

12,215,341

10,048,641

2.9

%

25.1

%

Advances from Federal Home Loan Bank

150,000

150,000

450,000

%

(66.7

)

%

Customer repurchase agreements and other borrowings

184,785

176,983

118,474

4.4

%

56.0

%

Subordinated notes, net

98,201

98,114

0.1

%

nm

Junior subordinated debentures at fair value

116,974

109,821

119,304

6.5

%

(2.0

)

%

Accrued expenses and other liabilities

202,643

200,038

227,889

1.3

%

(11.1

)

%

Deferred compensation

45,460

45,249

45,689

0.5

%

(0.5

)

%

Total liabilities

13,365,359

12,995,546

11,009,997

2.8

%

21.4

%

SHAREHOLDERS’ EQUITY

Common stock

1,349,879

1,347,612

1,373,940

0.2

%

(1.8

)

%

Retained earnings

247,316

222,959

186,838

10.9

%

32.4

%

Other components of shareholders’ equity

69,069

75,958

33,256

(9.1

)

%

107.7

%

Total shareholders’ equity

1,666,264

1,646,529

1,594,034

1.2

%

4.5

%

Total liabilities and shareholders’ equity

$

15,031,623

$

14,642,075

$

12,604,031

2.7

%

19.3

%

Common Shares Issued:

Shares outstanding at end of period

35,159,200

35,158,568

35,751,576

Common shareholders’ equity per share (1)

$

47.39

$

46.83

$

44.59

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

$

36.17

$

35.56

$

33.33

Common shareholders’ tangible equity to tangible assets (2)

8.69

%

8.78

%

9.77

%

Consolidated Tier 1 leverage capital ratio

9.50

%

9.56

%

10.71

%


(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

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Prior Qtr

Prior Yr Qtr

Commercial real estate:

Owner-occupied

$

1,076,467

$

1,049,877

$

980,021

2.5

%

9.8

%

Investment properties

1,955,684

1,991,258

2,024,988

(1.8

)

%

(3.4

)

%

Small balance CRE

573,849

597,971

613,484

(4.0

)

%

(6.5

)

%

Multifamily real estate

428,223

426,659

388,388

0.4

%

10.3

%

Construction, land and land development:

Commercial construction

228,937

220,285

210,668

3.9

%

8.7

%

Multifamily construction

305,527

291,105

233,610

5.0

%

30.8

%

One- to four-family construction

507,810

518,085

544,308

(2.0

)

%

(6.7

)

%

Land and land development

248,915

240,803

245,530

3.4

%

1.4

%

Commercial business:

Commercial business

2,178,461

2,343,619

1,364,650

(7.0

)

%

59.6

%

Small business scored

743,451

763,824

772,657

(2.7

)

%

(3.8

)

%

Agricultural business, including secured by farmland

299,949

326,169

337,271

(8.0

)

%

(11.1

)

%

One- to four-family residential

717,939

771,431

925,531

(6.9

)

%

(22.4

)

%

Consumer:

Consumer—home equity revolving lines of credit

491,812

504,523

519,336

(2.5

)

%

(5.3

)

%

Consumer—other

113,958

118,308

144,915

(3.7

)

%

(21.4

)

%

Total loans receivable

$

9,870,982

$

10,163,917

$

9,305,357

(2.9

)

%

6.1

%

Restructured loans performing under their restructured terms

$

6,673

$

5,790

$

6,466

Loans 30 - 89 days past due and on accrual

$

12,291

$

18,158

$

20,178

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

$

36,131

$

37,464

$

38,322

Total delinquent loans / Total loans receivable

0.37

%

0.37

%

0.41

%


LOANS BY GEOGRAPHIC LOCATION

Percentage Change

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Prior Qtr

Prior Yr Qtr

Amount

Percentage

Amount

Amount

Washington

$

4,647,553

47.0

%

$

4,767,113

$

4,364,764

(2.5

)

%

6.5

%

California

2,279,749

23.1

%

2,316,739

2,129,789

(1.6

)

%

7.0

%

Oregon

1,792,156

18.2

%

1,858,465

1,650,704

(3.6

)

%

8.6

%

Idaho

537,996

5.5

%

576,983

530,016

(6.8

)

%

1.5

%

Utah

80,704

0.8

%

76,314

60,958

5.8

%

32.4

%

Other

532,824

5.4

%

568,303

569,126

(6.2

)

%

(6.4

)

%

Total loans receivable

$

9,870,982

100.0

%

$

10,163,917

$

9,305,357

(2.9

)

%

6.1

%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending December 31, 2020, September 30, 2020, and December 31, 2019 and the twelve months ending December 31, 2020 and December 31, 2019 (in thousands).

LOAN ORIGINATIONS

Quarters Ended

Twelve Months Ended

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Dec 31, 2020

Dec 31, 2019

Commercial real estate

$

93,838

$

74,400

$

165,064

$

356,361

$

428,936

Multifamily real estate

7,900

2,664

20,035

27,119

71,124

Construction and land

515,280

412,463

530,193

1,588,311

1,433,313

Commercial business:

Commercial business

133,112

128,729

228,050

628,981

840,237

SBA PPP

24,848

1,176,018

Agricultural business

11,552

16,990

25,993

76,096

85,663

One-to four-family residential

28,402

32,733

30,432

116,713

112,165

Consumer

97,416

132,100

70,539

423,526

350,601

Total loan originations (excluding loans held for sale)

$

887,500

$

824,927

$

1,070,306

$

4,393,125

$

3,322,039


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Quarters Ended

Twelve Months Ended

CHANGE IN THE

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Dec 31, 2020

Dec 31, 2019

ALLOWANCE FOR CREDIT LOSSES - LOANS

Balance, beginning of period

$

167,965

$

156,352

$

97,801

$

100,559

$

96,485

Beginning balance adjustment for adoption of ASC 326

7,812

(Recapture)/provision for credit losses - loans

(593

)

13,641

4,000

64,285

10,000

Recoveries of loans previously charged off:

Commercial real estate

31

23

199

275

476

Construction and land

105

208

One- to four-family real estate

194

94

159

467

561

Commercial business

2,444

246

225

3,265

625

Agricultural business, including secured by farmland

51

10

1,823

47

Consumer

90

82

61

328

548

2,810

445

654

6,263

2,465

Loans charged off:

Commercial real estate

(1,375

)

(379

)

(1,854

)

(1,138

)

Multifamily real estate

(66

)

Construction and land

(45

)

(100

)

(45

)

One- to four-family real estate

(72

)

(136

)

(86

)

Commercial business

(1,019

)

(1,297

)

(1,180

)

(7,253

)

(4,171

)

Agricultural business, including secured by farmland

(37

)

(492

)

(4

)

(591

)

(911

)

Consumer

(472

)

(233

)

(667

)

(1,640

)

(2,040

)

(2,903

)

(2,473

)

(1,896

)

(11,640

)

(8,391

)

Net charge-offs

(93

)

(2,028

)

(1,242

)

(5,377

)

(5,926

)

Balance, end of period

$

167,279

$

167,965

$

100,559

$

167,279

$

100,559

Net charge-offs / Average loans receivable

(0.001

)

%

(0.019

)

%

(0.013

)

%

(0.053

)

(0.066

)

%


ALLOCATION OF

ALLOWANCE FOR CREDIT LOSSES - LOANS

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Specific or allocated credit loss allowance:

Commercial real estate

$

57,791

$

59,705

$

30,591

Multifamily real estate

3,893

3,256

4,754

Construction and land

41,295

39,477

22,994

One- to four-family real estate

9,913

12,868

4,136

Commercial business

35,007

35,369

23,370

Agricultural business, including secured by farmland

4,914

5,051

4,120

Consumer

14,466

12,239

8,202

Total allocated

167,279

167,965

98,167

Unallocated

2,392

Total allowance for credit losses - loans

$

167,279

$

167,965

$

100,559

Allowance for credit losses - loans / Total loans receivable

1.69

%

1.65

%

1.08

%

Allowance for credit losses - loans / Non-performing loans

470

%

482

%

254

%


Quarters Ended

Twelve Months Ended

CHANGE IN THE

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Dec 31, 2020

Dec 31, 2019

ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS

Balance, beginning of period

$

12,094

$

10,555

$

2,599

$

2,716

$

2,599

Beginning balance adjustment for adoption of ASC 326

7,022

Provision for credit losses - unfunded loan commitments

1,203

1,539

3,559

Additions through acquisitions

117

117

Balance, end of period

$

13,297

$

12,094

$

2,716

$

13,297

$

2,716


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

NON-PERFORMING ASSETS

Loans on non-accrual status:

Secured by real estate:

Commercial

$

18,199

$

7,824

$

5,952

Multifamily

85

Construction and land

936

937

1,905

One- to four-family

3,556

2,978

3,410

Commercial business

5,407

14,867

23,015

Agricultural business, including secured by farmland

1,743

2,066

661

Consumer

2,719

2,896

2,473

32,560

31,568

37,501

Loans more than 90 days delinquent, still on accrual:

Secured by real estate:

Commercial

89

Construction and land

332

One- to four-family

1,899

2,649

877

Commercial business

1,025

425

401

Consumer

130

181

398

3,054

3,255

2,097

Total non-performing loans

35,614

34,823

39,598

Real estate owned (REO)

816

1,795

814

Other repossessed assets

51

37

122

Total non-performing assets

$

36,481

$

36,655

$

40,534

Total non-performing assets to total assets

0.24

%

0.25

%

0.32

%


Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

LOANS BY CREDIT RISK RATING

Pass

$

9,494,147

$

9,699,098

$

9,130,662

Special Mention

36,598

41,575

61,189

Substandard

340,237

423,244

113,448

Doubtful

58

Total

$

9,870,982

$

10,163,917

$

9,305,357


Quarters Ended

Twelve Months Ended

REAL ESTATE OWNED

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Dec 31, 2020

Dec 31, 2019

Balance, beginning of period

$

1,795

$

2,400

$

228

$

814

$

2,611

Additions from loan foreclosures

1,588

109

Additions from acquisitions

650

650

Proceeds from dispositions of REO

(1,555

)

(707

)

(105

)

(2,360

)

(2,588

)

Gain (loss) on sale of REO

603

120

41

819

32

Valuation adjustments in the period

(27

)

(18

)

(45

)

Balance, end of period

$

816

$

1,795

$

814

$

816

$

814


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

DEPOSIT COMPOSITION

Percentage Change

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Prior Qtr

Prior Yr Qtr

Non-interest-bearing

$

5,492,924

$

5,412,570

$

3,945,000

1.5

%

39.2

%

Interest-bearing checking

1,569,435

1,434,224

1,280,003

9.4

%

22.6

%

Regular savings accounts

2,398,482

2,332,287

1,934,041

2.8

%

24.0

%

Money market accounts

2,191,135

2,120,908

1,769,194

3.3

%

23.8

%

Total interest-bearing transaction and savings accounts

6,159,052

5,887,419

4,983,238

4.6

%

23.6

%

Total core deposits

11,651,976

11,299,989

8,928,238

3.1

%

30.5

%

Interest-bearing certificates

915,320

915,352

1,120,403

%

(18.3

)

%

Total deposits

$

12,567,296

$

12,215,341

$

10,048,641

2.9

%

25.1

%


GEOGRAPHIC CONCENTRATION OF DEPOSITS

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Percentage Change

Amount

Percentage

Amount

Amount

Prior Qtr

Prior Yr Qtr

Washington

$

7,058,404

56.2

%

$

6,820,329

$

5,861,809

3.5

%

20.4

%

Oregon

2,604,908

20.7

%

2,486,760

2,006,163

4.8

%

29.8

%

California

2,237,949

17.8

%

2,254,681

1,698,289

(0.7

)

%

31.8

%

Idaho

666,035

5.3

%

653,571

482,380

1.9

%

38.1

%

Total deposits

$

12,567,296

100.0

%

$

12,215,341

$

10,048,641

2.9

%

25.1

%


INCLUDED IN TOTAL DEPOSITS

Dec 31, 2020

Sep 30, 2020

Dec 31, 2019

Public non-interest-bearing accounts

$

175,352

$

142,415

$

111,015

Public interest-bearing transaction & savings accounts

127,523

117,514

133,403

Public interest-bearing certificates

59,127

54,219

35,184

Total public deposits

$

362,002

$

314,148

$

279,602

Total brokered deposits

$

$

$

202,884


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 DECEMBER 31, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

Banner Corporation-consolidated:

Total capital to risk-weighted assets

$

1,608,387

14.73

%

$

873,472

8.00

%

$

1,091,840

10.00

%

Tier 1 capital to risk-weighted assets

1,371,736

12.56

%

655,104

6.00

%

655,104

6.00

%

Tier 1 leverage capital to average assets

1,371,736

9.50

%

577,331

4.00

%

n/a

n/a

Common equity tier 1 capital to risk-weighted assets

1,228,236

11.25

%

491,328

4.50

%

n/a

n/a

Banner Bank:

Total capital to risk-weighted assets

1,438,012

13.39

%

859,260

8.00

%

1,074,075

10.00

%

Tier 1 capital to risk-weighted assets

1,303,590

12.14

%

644,445

6.00

%

859,260

8.00

%

Tier 1 leverage capital to average assets

1,303,590

9.22

%

565,620

4.00

%

707,025

5.00

%

Common equity tier 1 capital to risk-weighted assets

1,303,590

12.14

%

483,334

4.50

%

698,149

6.50

%

Islanders Bank:

Total capital to risk-weighted assets

29,333

15.65

%

14,997

8.00

%

18,747

10.00

%

Tier 1 capital to risk-weighted assets

26,983

14.39

%

11,248

6.00

%

14,997

8.00

%

Tier 1 leverage capital to average assets

26,983

7.87

%

13,720

4.00

%

17,150

5.00

%

Common equity tier 1 capital to risk-weighted assets

26,983

14.39

%

8,436

4.50

%

12,185

6.50

%


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Quarters Ended

December 31, 2020

September 30, 2020

December 31, 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

$

110,414

$

976

3.52

%

$

161,385

$

1,535

3.78

%

$

202,686

$

2,048

4.01

%

Mortgage loans

7,251,101

84,634

4.64

%

7,339,181

88,011

4.77

%

7,134,231

93,653

5.21

%

Commercial/agricultural loans

2,752,352

29,145

4.21

%

2,862,291

26,396

3.67

%

1,853,447

23,829

5.10

%

Consumer and other loans

135,498

2,057

6.04

%

140,493

2,195

6.22

%

169,197

2,685

6.30

%

Total loans(1)(3)

10,249,365

116,812

4.53

%

10,503,350

118,137

4.47

%

9,359,561

122,215

5.18

%

Mortgage-backed securities

1,429,635

7,536

2.10

%

1,250,759

7,333

2.33

%

1,371,438

9,024

2.61

%

Other securities

975,166

6,634

2.71

%

884,916

6,036

2.71

%

418,767

3,032

2.87

%

Equity securities

234,822

64

0.11

%

379,483

186

0.19

%

%

Interest-bearing deposits with banks

611,234

219

0.14

%

171,894

123

0.28

%

107,959

531

1.95

%

FHLB stock

16,361

162

3.94

%

16,363

163

3.96

%

26,036

376

5.73

%

Total investment securities (3)

3,267,218

14,615

1.78

%

2,703,415

13,841

2.04

%

1,924,200

12,963

2.67

%

Total interest-earning assets

13,516,583

131,427

3.87

%

13,206,765

131,978

3.98

%

11,283,761

135,178

4.75

%

Non-interest-earning assets

1,349,055

1,259,816

1,152,751

Total assets

$

14,865,638

$

14,466,581

$

12,436,512

Deposits:

Interest-bearing checking accounts

$

1,483,183

315

0.08

%

$

1,413,085

321

0.09

%

$

1,228,936

564

0.18

%

Savings accounts

2,375,015

691

0.12

%

2,251,294

813

0.14

%

1,999,656

2,027

0.40

%

Money market accounts

2,165,960

1,047

0.19

%

2,096,037

1,224

0.23

%

1,607,954

2,842

0.70

%

Certificates of deposit

916,286

2,339

1.02

%

966,028

2,821

1.16

%

1,189,530

4,517

1.51

%

Total interest-bearing deposits

6,940,444

4,392

0.25

%

6,726,444

5,179

0.31

%

6,026,076

9,950

0.66

%

Non-interest-bearing deposits

5,499,240

%

5,340,688

%

3,959,097

%

Total deposits

12,439,684

4,392

0.14

%

12,067,132

5,179

0.17

%

9,985,173

9,950

0.40

%

Other interest-bearing liabilities:

FHLB advances

150,000

987

2.62

%

150,000

988

2.62

%

387,435

2,281

2.34

%

Other borrowings

187,560

121

0.26

%

177,628

128

0.29

%

126,782

121

0.38

%

Junior subordinated debentures and subordinated notes

247,944

2,216

3.56

%

247,944

2,260

3.63

%

145,339

1,566

4.27

%

Total borrowings

585,504

3,324

2.26

%

575,572

3,376

2.33

%

659,556

3,968

2.39

%

Total funding liabilities

13,025,188

7,716

0.24

%

12,642,704

8,555

0.27

%

10,644,729

13,918

0.52

%

Other non-interest-bearing liabilities(2)

195,965

193,256

189,682

Total liabilities

13,221,153

12,835,960

10,834,411

Shareholders’ equity

1,644,485

1,630,621

1,602,101

Total liabilities and shareholders’ equity

$

14,865,638

$

14,466,581

$

12,436,512

Net interest income/rate spread (tax equivalent)

$

123,711

3.63

%

$

123,423

3.71

%

$

121,260

4.23

%

Net interest margin (tax equivalent)

3.64

%

3.72

%

4.26

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(2,274

)

(2,397

)

(1,769

)

Net interest income and margin, as reported

$

121,437

3.57

%

$

121,026

3.65

%

$

119,491

4.20

%

Additional Key Financial Ratios: