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

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Banner Corporation (NASDAQ GSM: BANR) reported a net income of $36.5 million ($1.03 per diluted share) for Q3 2020, up from $23.5 million in Q2, but down from $39.6 million in Q3 2019. Year-to-date net income stands at $77.0 million, a decline from $112.6 million last year. The Board declared a quarterly cash dividend of $0.41 per share, payable on November 12, 2020. The company increased its allowance for credit losses to $168.0 million due to COVID-19 impacts. Total assets rose to $14.64 billion, and net loans decreased to $10.00 billion, with mortgage revenues more than doubling YoY.

Positive
  • Net income increased to $36.5 million from $23.5 million in Q2 2020.
  • Quarterly cash dividend of $0.41 per share declared, payable on November 12, 2020.
  • Mortgage banking revenues more than doubled YoY, reaching $16.6 million.
  • Total revenues grew 1% quarter-over-quarter and 9% year-over-year.
Negative
  • Year-to-date net income declined to $77.0 million from $112.6 million a year ago.
  • Increased allowance for credit losses to $168.0 million due to economic uncertainties.
  • Net loans decreased to $10.00 billion from $10.13 billion in Q2 2020.

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

Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable November 12, 2020, to common shareholders of record on November 3, 2020.

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

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

At September 30, 2020, Banner Corporation had $14.64 billion in assets, $10.00 billion in net loans and $12.22 billion in deposits. Banner operates 170 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

  • SBA Paycheck Protection Program. The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. As of September 30, 2020, Banner had funded 9,103 applications totaling $1.15 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA was August 8, 2020. Banner is no longer accepting new applications for PPP loans and is preparing to process applications for PPP loan forgiveness beginning in the fourth quarter of 2020. Banner will continue to assist small businesses with other borrowing options as they become available.
  • Loan Accommodations. Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or may be eligible for an additional deferral period for up to 90 days. In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months. Year to date, Banner has deferred payment or waived interest on 3,370 loans totaling $1.09 billion. Through September 30, 2020 the deferral period had ended for approximately 78%, or $849.7 million of these loans, leaving $239.6 million still on deferral. Of the loans still on deferral, 107 loans totaling $160.4 million have received a second deferral. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through September 30, 2020 pursuant to applicable accounting and regulatory guidance.
  • Allowance for Credit Losses - Loans. Banner recorded a provision for credit losses of $13.6 million for the third quarter of 2020, compared to a $29.5 million provision in the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of September 30, 2020 and June 30, 2020, respectively.
  • Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of its clients and personnel. To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner’s network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $778,000 of related costs during the third quarter of 2020, compared to $2.2 million of related costs in the second quarter of 2020.
  • Capital Management. At September 30, 2020, the tangible common shareholders’ equity to tangible assets* ratio was 8.78% and 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. In response to the COVID-19 pandemic outbreak and to preserve capital, Banner has suspended repurchases of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Third Quarter 2020 Highlights

  • Revenues increased to $149.2 million, compared to $147.3 million in the preceding quarter, and increased 9% when compared to $137.5 million in the third quarter a year ago.
  • Net interest income, before the provision for credit losses, increased to $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.
  • Net interest margin was 3.65%, compared to 3.81% in the preceding quarter and 4.25% in the third quarter a year ago.
  • Net interest margin on a tax equivalent basis was 3.72%, compared to 3.87% in the preceding quarter and 4.29% in the third quarter a year ago.
  • Mortgage banking revenues increased 17% to $16.6 million, compared to $14.1 million in the preceding quarter, and increased 150% compared to $6.6 million in the third quarter a year ago, reflecting strong refinance and purchase demand coupled with higher margins due to decreasing market interest rates.
  • Return on average assets was 1.01%, compared to 0.68% in the preceding quarter and 1.31% in the third quarter a year ago.
  • Net loans receivable decreased to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019.
  • Non-performing assets decreased to $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets in the preceding quarter, and increased from $18.6 million, or 0.15% of total assets, at September 30, 2019.
  • Provision for credit losses - loans was $13.6 million, and the allowance for credit losses - loans was $168.0 million, or 1.65% of total loans receivable, as of September 30, 2020, compared to $156.4 million, or 1.52% of total loans receivable as of June 30, 2020 and $97.8 million or 1.11% of total loans receivable as of September 30, 2019.
  • A $1.5 million provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $12.1 million as of September 30, 2020, compared to $10.6 million as of June 30, 2020.
  • Core deposits increased 3% to $11.30 billion at September 30, 2020, compared to $10.97 billion at June 30, 2020, and increased 33% compared to $8.51 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) represented 93% of total deposits at September 30, 2020.
  • Dividends to shareholders were $0.41 per share in the quarter ended September 30, 2020.
  • Common shareholders’ equity per share increased 1% to $46.83 at September 30, 2020, compared to $46.22 at the preceding quarter end, and increased 5% from $44.80 a year ago.
  • Tangible common shareholders’ equity per share* increased 2% to $35.56 at September 30, 2020, compared to $34.89 at the preceding quarter end, and increased 4% from $34.10 a year ago.

*Tangible common shareholders’ equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in 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 September 25, 2020, Banner completed the consolidation of six branches. In addition, Banner has made the decision to consolidate another 14 branches in December of 2020. Client adoption of mobile and digital banking accelerated during the second and third quarters, while physical branch transaction volume declined. We believe this shift in client service delivery channel preference will sustain after the pandemic social distancing related restrictions have ended.

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

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

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

Income Statement Review

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

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

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

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

Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of September 30, 2020 and June 30, 2020, respectively.

Total non-interest income was $28.2 million in the third quarter of 2020, compared to $27.7 million in the preceding quarter and $20.9 million in the third quarter a year ago. Deposit fees and other service charges were $8.7 million in the third quarter of 2020, compared to $7.5 million in the preceding quarter and $10.3 million in the third quarter a year ago. The decrease in deposit fees and other service charges from the third quarter a year ago is primarily a result of fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $16.6 million in the third quarter, compared to $14.1 million in the preceding quarter and $6.6 million in the third quarter of 2019. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans. The increases compared to the third quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans due to increased production related to refinance activity as well as increased gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2020, compared to 42% in the prior quarter and 56% in the third quarter of 2019. In the first nine months of 2020, total non-interest income increased 22% to $75.1 million, compared to $61.7 million in the first nine months of 2019.

Banner’s third quarter 2020 results included a $37,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading as a result of the tightening of market spreads during the quarter, and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of our Visa Class B shares. In the preceding quarter, results included a $2.2 million net gain for fair value adjustments and a $93,000 net gain on the sale of securities. In the third quarter a year ago, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.

Banner’s total revenue increased 1% to $149.2 million for the third quarter of 2020, compared to $147.3 million in the preceding quarter, and increased 9% compared to $137.5 million in the third quarter a year ago. Year-to-date, total revenues increased 6% to $435.0 million compared to $411.1 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $148.6 million in the third quarter of 2020, compared to $145.0 million in the preceding quarter and $137.6 million in the third quarter of 2019. In the first nine months of the year, adjusted revenue* was $436.5 million, compared to $411.3 million in the first nine months of 2019.

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

For the third quarter of 2020, Banner had $7.5 million in state and federal income tax expense for an effective tax rate of 17.0%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 2% to $14.64 billion at September 30, 2020, compared to $14.41 billion at June 30, 2020, and increased 21% when compared to $12.10 billion at September 30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.63 billion at September 30, 2020, compared to $2.30 billion at June 30, 2020 and $1.87 billion at September 30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at September 30, 2020, compared to 3.1 years at September 30, 2019.

Net loans receivable decreased 1% to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019. The year-over-year increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020, which totaled $1.15 billion as of September 30, 2020 and also included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019. Commercial real estate and multifamily real estate loans decreased to $4.07 billion at September 30, 2020, compared to $4.11 billion at June 30, 2020, and increased 11% compared to $3.67 billion a year ago. Commercial business loans decreased 1% to $3.11 billion at September 30, 2020, compared to $3.15 billion at June 30, 2020, and increased 52% compared to $2.05 billion a year ago primarily due to SBA PPP loans. Agricultural business loans decreased to $326.2 million at September 30, 2020, compared to $328.1 million three months earlier and $356.0 million a year ago. Total construction, land and land development loans were $1.27 billion at September 30, 2020, a 3% increase from $1.24 billion at June 30, 2020, and a 9% increase compared to $1.16 billion a year earlier. Consumer loans decreased to $622.8 million at September 30, 2020, compared to $642.4 million at June 30, 2020, and $685.1 million a year ago. One- to four-family loans decreased to $771.4 million at September 30, 2020, compared to $817.8 million at June 30, 2020, and $909.0 million a year ago.

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

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

At September 30, 2020, total common shareholders’ equity was $1.65 billion, or 11.25% of assets, compared to $1.63 billion or 11.28% of assets at June 30, 2020, and $1.53 billion or 12.65% of assets a year ago. At September 30, 2020, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.25 billion, or 8.78% of tangible assets*, compared to $1.23 billion, or 8.76% of tangible assets, at June 30, 2020, and $1.17 billion, or 9.93% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $35.56 at September 30, 2020, compared to $34.10 per share a year ago.

Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At September 30, 2020, Banner's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 9.56%, and its total capital to risk-weighted assets ratio was 14.65%.

Credit Quality

The allowance for credit losses - loans was $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, compared to $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, and $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments which was $12.1 million at September 30, 2020, compared to $10.6 million at June 30, 2020 and $2.6 million at September 30, 2019. Net loan charge-offs totaled $2.0 million in the third quarter of 2020, compared to net loan charge-offs of $3.7 million in the preceding quarter and $2.5 million of net charge-offs in the third quarter a year ago. Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses. Non-performing loans were $34.8 million at September 30, 2020, compared to $37.4 million at June 30, 2020, and $18.3 million a year ago. Real estate owned and other repossessed assets were $1.8 million at September 30, 2020, compared to $2.4 million at June 30, 2020, and $343,000 a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date. At September 30, 2020, the total purchase discount for acquired loans was $17.9 million.

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

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

Conference Call

Banner will host a conference call on Thursday, October 22, 2020, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10147897, or at www.bannerbank.com.

About the Company

Banner Corporation is a $14.64 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect 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 Nine Months Ended
(in thousands except shares and per share data) Sep 30, 2020 June 30, 2020 Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
           
INTEREST INCOME:          
Loans receivable $116,716  $115,173  $118,096  $350,815  $350,558 
Mortgage-backed securities 7,234  7,983  9,415  24,354  29,716 
Securities and cash equivalents 5,631  5,591  3,925  14,824  11,996 
  129,581  128,747  131,436  389,993  392,270 
INTEREST EXPENSE:          
Deposits 5,179  6,694  10,014  20,623  27,680 
Federal Home Loan Bank advances 988  984  3,107  4,036  9,953 
Other borrowings 128  238  82  482  209 
Junior subordinated debentures and subordinated notes 2,260  1,251  1,612  4,988  5,008 
  8,555  9,167  14,815  30,129  42,850 
Net interest income before provision for credit losses 121,026  119,580  116,621  359,864  349,420 
PROVISION FOR CREDIT LOSSES 13,641  29,528  2,000  64,917  6,000 
Net interest income 107,385  90,052  114,621  294,947  343,420 
NON-INTEREST INCOME:          
Deposit fees and other service charges 8,742  7,546  10,331  26,091  36,995 
Mortgage banking operations 16,562  14,138  6,616  40,891  15,967 
Bank-owned life insurance 1,286  2,317  1,076  4,653  3,475 
Miscellaneous 951  1,427  2,914  5,017  5,431 
  27,541  25,428  20,937  76,652  61,868 
Net gain (loss) on sale of securities 644  93  (2) 815  (29)
Net change in valuation of financial instruments carried at fair value 37  2,199  (69) (2,360) (172)
Total non-interest income 28,222  27,720  20,866  75,107  61,667 
NON-INTEREST EXPENSE:          
Salary and employee benefits 61,171  63,415  59,090  184,494  169,359 
Less capitalized loan origination costs (8,517) (11,110) (7,889) (25,433) (20,137)
Occupancy and equipment 13,022  12,985  12,566  39,114  39,013 
Information / computer data services 6,090  6,084  5,657  17,984  16,256 
Payment and card processing services 4,044  3,851  4,330  12,135  12,355 
Professional and legal expenses 2,368  2,163  2,704  6,450  7,474 
Advertising and marketing 1,105  652  2,221  3,584  5,815 
Deposit insurance expense 1,628  1,705  (1,604) 4,968  1,232 
State/municipal business and use taxes 1,196  1,104  1,011  3,284  2,963 
Real estate operations (11) 4  126  93  263 
Amortization of core deposit intangibles 1,864  2,002  1,985  5,867  6,090 
Provision/(recapture) for credit losses - unfunded loan commitments 1,539  (905)   2,356   
Miscellaneous 5,285  5,199  6,435  16,841  20,230 
  90,784  87,149  86,632  271,737  260,913 
COVID-19 expenses 778  2,152    3,169   
Acquisition-related expenses 5  336  676  1,483  3,125 
Total non-interest expense 91,567  89,637  87,308  276,389  264,038 
Income before provision for income taxes 44,040  28,135  48,179  93,665  141,049 
PROVISION FOR INCOME TAXES 7,492  4,594  8,602  16,694  28,426 
NET INCOME $36,548  $23,541  $39,577  $76,971  $112,623 
Earnings per share available to common shareholders:          
Basic $1.04  $0.67  $1.15  $2.18  $3.24 
Diluted $1.03  $0.67  $1.15  $2.17  $3.23 
Cumulative dividends declared per common share $0.41  $  $0.41  $0.82  $1.23 
Weighted average common shares outstanding:          
Basic 35,193,109  35,189,260  34,407,462  35,285,567  34,760,607 
Diluted 35,316,679  35,283,690  34,497,994  35,524,771  34,850,006 
Increase (decrease) in common shares outstanding 669  55,440  (400,286) (593,008) (1,009,415)


FINANCIAL  CONDITION         Percentage Change
(in thousands except shares and per share data) Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019 Prior Qtr Prior Yr Qtr
             
ASSETS            
Cash and due from banks $289,144   $291,036   $234,359   $250,671   (0.7)% 15.3 %
Interest-bearing deposits 416,394   128,938   73,376   73,785   222.9 % 464.3 %
Total cash and cash equivalents 705,538   419,974   307,735   324,456   68.0 % 117.5 %
Securities - trading 23,276   23,239   25,636   25,672   0.2 % (9.3)%
Securities - available for sale 1,758,384   1,706,781   1,551,557   1,539,908   3.0 % 14.2 %
Securities - held to maturity 429,033   441,075   236,094   230,056   (2.7)% 86.5 %
Total securities 2,210,693   2,171,095   1,813,287   1,795,636   1.8 % 23.1 %
Equity securities 450,255   340,052         32.4 % nm
Federal Home Loan Bank stock 16,363   16,363   28,342   25,623    % (36.1)%
Loans held for sale 185,938   258,700   210,447   244,889   (28.1)% (24.1)%
Loans receivable 10,163,917   10,283,999   9,305,357   8,835,368   (1.2)% 15.0 %
Allowance for credit losses - loans (167,965)  (156,352)  (100,559)  (97,801)  7.4 % 71.7 %
Net loans receivable 9,995,952   10,127,647   9,204,798   8,737,567   (1.3)% 14.4 %
Accrued interest receivable 48,321   48,806   37,962   40,033   (1.0)% 20.7 %
Real estate owned held for sale, net 1,795   2,400   814   228   (25.2)% 687.3 %
Property and equipment, net 171,576   173,360   178,008   171,279   (1.0)% 0.2 %
Goodwill 373,121   373,121   373,121   339,154    % 10.0 %
Other intangibles, net 23,291   25,155   29,158   26,610   (7.4)% (12.5)%
Bank-owned life insurance 191,755   190,468   192,088   179,076   0.7 % 7.1 %
Other assets 267,477   258,466   228,271   213,291   3.5 % 25.4 %
Total assets $14,642,075   $14,405,607   $12,604,031   $12,097,842   1.6 % 21.0 %
LIABILITIES            
Deposits:            
Non-interest-bearing $5,412,570   $5,281,559   $3,945,000   $3,885,210   2.5 % 39.3 %
Interest-bearing transaction and savings accounts 5,887,419   5,692,715   4,983,238   4,624,970   3.4 % 27.3 %
Interest-bearing certificates 915,352   1,042,006   1,120,403   1,218,591   (12.2)% (24.9)%
Total deposits 12,215,341   12,016,280   10,048,641   9,728,771   1.7 % 25.6 %
Advances from Federal Home Loan Bank 150,000   150,000   450,000   382,000    % (60.7)%
Customer repurchase agreements and other borrowings 176,983   166,084   118,474   120,014   6.6 % 47.5 %
Subordinated notes, net 98,114   98,140          % nm
Junior subordinated debentures at fair value 109,821   109,613   119,304   113,417   0.2 % (3.2)%
Accrued expenses and other liabilities 200,038   194,964   227,889   181,351   2.6 % 10.3 %
Deferred compensation 45,249   45,423   45,689   41,354   (0.4)% 9.4 %
Total liabilities 12,995,546   12,780,504   11,009,997   10,566,907   1.7 % 23.0 %
SHAREHOLDERS’ EQUITY            
Common stock 1,347,612   1,345,096   1,373,940   1,286,711   0.2 % 4.7 %
Retained earnings 222,959   201,448   186,838   203,704   10.7 % 9.5 %
Other components of shareholders’ equity 75,958   78,559   33,256   40,520   (3.3)% 87.5 %
Total shareholders’ equity 1,646,529   1,625,103   1,594,034   1,530,935   1.3 % 7.6 %
Total liabilities and shareholders’ equity $14,642,075   $14,405,607   $12,604,031   $12,097,842   1.6 % 21.0 %
Common Shares Issued:            
Shares outstanding at end of period 35,158,568   35,157,899   35,751,576   34,173,357      
Common shareholders’ equity per share (1) $46.83   $46.22   $44.59   $44.80      
Common shareholders’ tangible equity per share (1) (2) $35.56   $34.89   $33.33   $34.10      
Common shareholders’ tangible equity to tangible assets (2) 8.78 % 8.76 % 9.77 % 9.93 %    
Consolidated Tier 1 leverage capital ratio 9.56 % 9.83 % 10.71 % 10.70 %    


(1)Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2)Common shareholders’ tangible equity excludes goodwill and other intangible assets.  Tangible assets exclude goodwill and other intangible assets.  These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
          Percentage Change
LOANS Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019 Prior Qtr Prior Yr Qtr
             
Commercial real estate:            
Owner-occupied $1,049,877  $1,027,399  $980,021  $883,233  2.2 % 18.9 %
Investment properties 1,991,258  2,017,789  2,024,988  1,867,593  (1.3)% 6.6 %
Small balance CRE 597,971  624,726  613,484  609,620  (4.3)% (1.9)%
Multifamily real estate 426,659  437,201  388,388  314,447  (2.4)% 35.7 %
Construction, land and land development:            
Commercial construction 220,285  215,860  210,668  190,532  2.0 % 15.6 %
Multifamily construction 291,105  256,335  233,610  214,878  13.6 % 35.5 %
One- to four-family construction 518,085  528,966  544,308  507,674  (2.1)% 2.1 %
Land and land development 240,803  235,602  245,530  250,681  2.2 % (3.9)%
Commercial business:            
Commercial business 2,343,619  2,372,216  1,364,650  1,277,089  (1.2)% 83.5 %
Small business scored 763,824  779,678  772,657  769,538  (2.0)% (0.7)%
Agricultural business, including secured by farmland 326,169  328,077  337,271  355,994  (0.6)% (8.4)%
One- to four-family residential 771,431  817,787  925,531  908,988  (5.7)% (15.1)%
Consumer:            
Consumer—home equity revolving lines of credit 504,523  515,603  519,336  534,876  (2.1)% (5.7)%
Consumer—other 118,308  126,760  144,915  150,225  (6.7)% (21.2)%
Total loans receivable $10,163,917  $10,283,999  $9,305,357  $8,835,368  (1.2)% 15.0 %
Restructured loans performing under their restructured terms $5,790  $6,391  $6,466  $6,721     
Loans 30 - 89 days past due and on accrual $18,158  $20,807  $20,178  $11,496     
Total delinquent loans (including loans on non-accrual), net $37,464  $36,269  $38,322  $26,830     
Total delinquent loans  /  Total loans receivable 0.37% 0.35% 0.41% 0.30%    


LOANS BY GEOGRAPHIC LOCATION           Percentage Change
  Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019 Prior Qtr Prior Yr Qtr
  Amount Percentage Amount Amount Amount    
               
Washington $4,767,113  46.8% $4,787,550  $4,364,764  $4,313,972  (0.4)% 10.5%
California 2,316,739  22.8% 2,359,703  2,129,789  1,729,208  (1.8)% 34.0%
Oregon 1,858,465  18.3% 1,899,933  1,650,704  1,615,192  (2.2)% 15.1%
Idaho 576,983  5.7% 592,515  530,016  552,523  (2.6)% 4.4%
Utah 76,314  0.8% 67,929  60,958  62,197  12.3 % 22.7%
Other 568,303  5.6% 576,369  569,126  562,276  (1.4)% 1.1%
Total loans receivable $10,163,917  100.0% $10,283,999  $9,305,357  $8,835,368  (1.2)% 15.0%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

LOAN ORIGINATIONSQuarters Ended
 Sep 30, 2020 June 30, 2020 Sep 30, 2019
Commercial real estate$74,400  $111,765  $106,690 
Multifamily real estate2,664  6,384  27,522 
Construction and land412,463  290,955  303,151 
Commercial business153,577  1,318,438  208,277 
Agricultural business16,990  16,293  10,993 
One-to four-family residential32,733  24,537  27,184 
Consumer132,100  126,653  99,823 
Total loan originations (excluding loans held for sale)$824,927  $1,895,025  $783,640 


ADDITIONAL FINANCIAL INFORMATION      
(dollars in thousands)      
  Quarters Ended
CHANGE IN THE Sep 30, 2020 June 30, 2020 Sep 30, 2019
ALLOWANCE FOR CREDIT LOSSES - LOANS      
Balance, beginning of period $156,352  $130,488  $98,254 
Provision for credit losses - loans 13,641  29,524  2,000 
Recoveries of loans previously charged off:      
Commercial real estate 23  54  107 
Construction and land   105  156 
One- to four-family real estate 94  31  129 
Commercial business 246  370  162 
Agricultural business, including secured by farmland   22  2 
Consumer 82  60  154 
  445  642  710 
Loans charged off:      
Commercial real estate (379)    (314) 
Construction and land   (100)   
One- to four-family real estate (72)    (86) 
Commercial business (1,297)  (3,553)  (1,599) 
Agricultural business, including secured by farmland (492)  (62)  (741) 
Consumer (233)  (587)  (423) 
  (2,473)  (4,302)  (3,163) 
Net (charge-offs)/recoveries (2,028)  (3,660)  (2,453) 
Balance, end of period $167,965  $156,352  $97,801 
Net (charge-offs)/recoveries / Average loans receivable (0.019)% (0.036)% (0.027)%


ALLOCATION OF      
ALLOWANCE FOR CREDIT LOSSES - LOANS Sep 30, 2020 June 30, 2020 Sep 30, 2019
Specific or allocated credit loss allowance:      
Commercial real estate $59,705  $53,166  $28,515 
Multifamily real estate 3,256  3,504  4,283 
Construction and land 39,477  36,916  22,569 
One- to four-family real estate 12,868  12,746  4,569 
Commercial business 35,369  33,870  21,147 
Agricultural business, including secured by farmland 5,051  4,517  3,895 
Consumer 12,239  11,633  8,441 
Total allocated 167,965  156,352  93,419 
Unallocated     4,382 
Total allowance for credit losses - loans $167,965  $156,352  $97,801 
Allowance for credit losses - loans / Total loans receivable 1.65% 1.52% 1.11%
Allowance for credit losses - loans / Non-performing loans 482% 418% 536%


  Quarters Ended
CHANGE IN THE Sep 30, 2020 June 30, 2020 Sep 30, 2019
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS      
Balance, beginning of period $10,555  $11,460  $2,599 
Provision/(recapture) for credit losses - unfunded loan commitments 1,539  (905)   
Balance, end of period $12,094  $10,555  $2,599 


ADDITIONAL FINANCIAL INFORMATION       
(dollars in thousands)       
 Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019
NON-PERFORMING ASSETS       
Loans on non-accrual status:       
Secured by real estate:       
Commercial$7,824  $10,845  $5,952  $5,092 
Multifamily    85  87 
Construction and land937  732  1,905  1,318 
One- to four-family2,978  2,942  3,410  3,007 
Commercial business14,867  18,486  23,015  3,035 
Agricultural business, including secured by farmland2,066  433  661  757 
Consumer2,896  2,412  2,473  2,473 
 31,568  35,850  37,501  15,769 
Loans more than 90 days delinquent, still on accrual:       
Secured by real estate:       
Commercial    89  89 
Construction and land    332  1,141 
One- to four-family2,649  472  877  652 
Commercial business425  1  401  358 
Agricultural business, including secured by farmland  1,061     
Consumer181  36  398  247 
 3,255  1,570  2,097  2,487 
Total non-performing loans34,823  37,420  39,598  18,256 
Real estate owned (REO)1,795  2,400  814  228 
Other repossessed assets37  47  122  115 
Total non-performing assets$36,655  $39,867  $40,534  $18,599 
Total non-performing assets to total assets0.25% 0.28% 0.32% 0.15%


 Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019
LOANS BY CREDIT RISK RATING       
        
Pass$9,699,098  $9,869,917  $9,130,662  $8,702,171 
Special Mention41,575  54,291  61,189  19,989 
Substandard423,244  359,791  113,448  113,150 
Doubtful    58  58 
Total$10,163,917  $10,283,999  $9,305,357  $8,835,368 


 Quarters Ended Nine Months Ended
REAL ESTATE OWNEDSep 30, 2020 June 30, 2020 Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
Balance, beginning of period$2,400  $2,402  $2,513  $814  $2,611 
Additions from loan foreclosures    48  1,588  109 
Proceeds from dispositions of REO(707) (98) (2,333) (805) (2,483)
Gain (loss) on sale of REO120  96    216  (9)
Valuation adjustments in the period(18)     (18)  
Balance, end of period$1,795  $2,400  $228  $1,795  $228 


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
             
DEPOSIT COMPOSITION         Percentage Change
  Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019 Prior Qtr Prior Yr Qtr
             
Non-interest-bearing $5,412,570  $5,281,559  $3,945,000  $3,885,210  2.5 % 39.3 %
Interest-bearing checking 1,434,224  1,399,593  1,280,003  1,209,826  2.5 % 18.5 %
Regular savings accounts 2,332,287  2,197,790  1,934,041  1,863,839  6.1 % 25.1 %
Money market accounts 2,120,908  2,095,332  1,769,194  1,551,305  1.2 % 36.7 %
Total interest-bearing transaction and savings accounts 5,887,419  5,692,715  4,983,238  4,624,970  3.4 % 27.3 %
Total core deposits 11,299,989  10,974,274  8,928,238  8,510,180  3.0 % 32.8 %
Interest-bearing certificates 915,352  1,042,006  1,120,403  1,218,591  (12.2)% (24.9)%
Total deposits $12,215,341  $12,016,280  $10,048,641  $9,728,771  1.7 % 25.6 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS            
  Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019 Percentage Change
  Amount Percentage Amount Amount Amount Prior Qtr Prior Yr Qtr
Washington $6,820,329  55.8% $6,765,186  $5,861,809  $5,833,547  0.8% 16.9%
Oregon 2,486,760  20.4% 2,440,617  2,006,163  1,990,155  1.9% 25.0%
California 2,254,681  18.4% 2,224,477  1,698,289  1,429,939  1.4% 57.7%
Idaho 653,571  5.4% 586,000  482,380  475,130  11.5% 37.6%
Total deposits $12,215,341  100.0% $12,016,280  $10,048,641  $9,728,771  1.7% 25.6%


INCLUDED IN TOTAL DEPOSITS Sep 30, 2020 June 30, 2020 Dec 31, 2019 Sep 30, 2019
Public non-interest-bearing accounts $142,415  $139,133  $111,015  $114,879 
Public interest-bearing transaction & savings accounts 117,514  136,039  133,403  119,729 
Public interest-bearing certificates 54,219  56,609  35,184  26,609 
Total public deposits $314,148  $331,781  $279,602  $261,217 
Total brokered deposits $  $119,399  $202,884  $299,496 


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
  Actual Minimum to be
categorized as
"Adequately Capitalized"
 Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2020 Amount Ratio Amount Ratio Amount Ratio
             
Banner Corporation-consolidated:            
Total capital to risk-weighted assets $1,574,737  14.65% $859,979  8.00% $1,074,974  10.00%
Tier 1 capital to risk-weighted assets 1,340,173  12.47% 644,985  6.00% 644,985  6.00%
Tier 1 leverage capital to average assets 1,340,173  9.56% 560,816  4.00% n/a n/a
Common equity tier 1 capital to risk-weighted assets 1,196,673  11.13% 483,738  4.50% n/a n/a
             
Banner Bank:            
Total capital to risk-weighted assets 1,409,158  13.34% 845,076  8.00% 1,056,344  10.00%
Tier 1 capital to risk-weighted assets 1,276,928  12.09% 633,807  6.00% 845,076  8.00%
Tier 1 leverage capital to average assets 1,276,928  9.31% 548,867  4.00% 686,083  5.00%
Common equity tier 1 capital to risk-weighted assets 1,276,928  12.09% 475,355  4.50% 686,624  6.50%
             
Islanders Bank:            
Total capital to risk-weighted assets 29,516  15.14% 15,594  8.00% 19,493  10.00%
Tier 1 capital to risk-weighted assets 27,077  13.89% 11,696  6.00% 15,594  8.00%
Tier 1 leverage capital to average assets 27,077  8.15% 13,289  4.00% 16,611  5.00%
Common equity tier 1 capital to risk-weighted assets 27,077  13.89% 8,772  4.50% 12,671  6.50%


ADDITIONAL FINANCIAL INFORMATION                 
(dollars in thousands)                 
(rates / ratios annualized)                 
ANALYSIS OF NET INTEREST SPREADQuarters Ended
 September 30, 2020 June 30, 2020 September 30, 2019
 Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3)
Interest-earning assets:                 
Held for sale loans$161,385  $1,535   3.78% $152,636  $1,451   3.82% $154,529  $1,607   4.13%
Mortgage loans7,339,181  88,011   4.77% 7,314,125  87,172   4.79% 6,872,426  90,268   5.21%
Commercial/agricultural loans2,862,291  26,396   3.67% 2,599,878  25,200   3.90% 1,809,397  24,319   5.33%
Consumer and other loans140,493  2,195   6.22% 152,438  2,361   6.23% 173,342  2,791   6.39%
Total loans(1)(3)10,503,350  118,137   4.47% 10,219,077  116,184   4.57% 9,009,694  118,985   5.24%
Mortgage-backed securities1,250,759  7,333   2.33% 1,286,223  8,083   2.53% 1,358,448  9,484   2.77%
Other securities884,916  6,036   2.71% 787,957  5,859   2.99% 414,994  3,378   3.23%
Equity securities379,483  186   0.19% 114,349  123   0.43%      %
Interest-bearing deposits with banks171,894  123   0.28% 212,502  172   0.33% 82,836  489   2.34%
FHLB stock16,363  163   3.96% 16,620  300   7.26% 29,400  378   5.10%
Total investment securities (3)2,703,415  13,841   2.04% 2,417,651  14,537   2.42% 1,885,678  13,729   2.89%
Total interest-earning assets13,206,765  131,978   3.98% 12,636,728  130,721   4.16% 10,895,372  132,714   4.83%
Non-interest-earning assets1,259,816      1,245,626      1,078,621     
Total assets$14,466,581      $13,882,354      $11,973,993     
Deposits:                 
Interest-bearing checking accounts$1,413,085  321   0.09% $1,376,710  374   0.11% $1,194,633  621   0.21%
Savings accounts2,251,294  813   0.14% 2,108,896  998   0.19% 1,854,967  2,244   0.48%
Money market accounts2,096,037  1,224   0.23% 1,979,419  1,565   0.32% 1,542,264  2,944   0.76%
Certificates of deposit966,028  2,821   1.16% 1,117,547  3,757   1.35% 1,155,710  4,205   1.44%
Total interest-bearing deposits6,726,444  5,179   0.31% 6,582,572  6,694   0.41% 5,747,574  10,014   0.69%
Non-interest-bearing deposits5,340,688     % 4,902,992     % 3,786,143     %
Total deposits12,067,132  5,179   0.17% 11,485,564  6,694   0.23% 9,533,717  10,014   0.42%
Other interest-bearing liabilities:                 
FHLB advances150,000  988   2.62% 156,374  984   2.53% 476,435  3,107   2.59%
Other borrowings177,628  128   0.29% 285,735  238   0.34% 122,035  82   0.27%
Junior subordinated debentures and subordinated notes247,944  2,260   3.63% 149,043  1,251   3.38% 140,212  1,612   4.56%
Total borrowings575,572  3,376   2.33% 591,152  2,473   1.68% 738,682  4,801   2.58%
Total funding liabilities12,642,704  8,555   0.27% 12,076,716  9,167   0.31% 10,272,399  14,815   0.57%
Other non-interest-bearing liabilities(2)193,256      188,369      163,809     
Total liabilities12,835,960      12,265,085      10,436,208     
Shareholders’ equity1,630,621      1,617,269      1,537,785     
Total liabilities and shareholders’ equity$14,466,581      $13,882,354      $11,973,993     
Net interest income/rate spread (tax equivalent)  $123,423   3.71%   $121,554   3.85%   $117,899   4.26%
Net interest margin (tax equivalent)    3.72%     3.87%     4.29%
Reconciliation to reported net interest income:                 
Adjustments for taxable equivalent basis  (2,397)      (1,974)      (1,278)   
Net interest income and margin, as reported  $121,026   3.65%   $119,580   3.81%   $116,621   4.25%
Additional Key Financial Ratios:                 
Return on average assets    1.01%     0.68%     1.31%
Return on average equity    8.92%     5.85%     10.21%
Average equity/average assets    11.27%     11.65%     12.84%
Average interest-earning assets/average interest-bearing liabilities    180.86%     176.15%     167.98%
Average interest-earning assets/average funding liabilities    104.46%     104.64%     106.06%
Non-interest income/average assets    0.78%     0.80%     0.69%
Non-interest expense/average assets    2.52%     2.60%     2.89%
Efficiency ratio(4)    61.35%     60.85%     63.50%
Adjusted efficiency ratio(5)    59.05%     57.95%     60.71%


(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.4 million, $1.0 million, and $889,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $976,000, $963,000, and $389,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively.
(4)Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION           
(dollars in thousands)           
(rates / ratios annualized)           
ANALYSIS OF NET INTEREST SPREADNine Months Ended
 September 30, 2020 September 30, 2019
 Average Balance Interest and Dividends Yield/Cost(3) Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:           
Held for sale loans$155,571  $4,506   3.87% $100,273  $3,295   4.39%
Mortgage loans7,321,206  268,244   4.89% 6,835,861  269,588   5.27%
Commercial/agricultural loans2,450,234  74,555   4.06% 1,761,222  72,086   5.47%
Consumer and other loans151,968  7,151   6.29% 178,792  8,545   6.39%
Total loans(1)(3)10,078,979  354,456   4.70% 8,876,148  353,514   5.32%
Mortgage-backed securities1,297,020  24,652   2.54% 1,368,081  29,785   2.91%
Other securities710,967  15,205   2.86% 449,030  10,894   3.24%
Equity securities165,395  309   0.25%      %
Interest-bearing deposits with banks159,065  688   0.58% 60,655  1,118   2.46%
FHLB stock19,822  785   5.29% 30,679  1,031   4.49%
Total investment securities(3)2,352,269  41,639   2.36% 1,908,445  42,828   3.00%
Total interest-earning assets12,431,248  396,095   4.26% 10,784,593  396,342   4.91%
Non-interest-earning assets1,232,997      1,053,180     
Total assets$13,664,245      $11,837,773     
Deposits:           
Interest-bearing checking accounts$1,352,369  1,164   0.11% $1,175,521  1,660   0.19%
Savings accounts2,133,780  3,566   0.22% 1,853,671  6,283   0.45%
Money market accounts1,940,096  5,228   0.36% 1,510,293  7,851   0.70%
Certificates of deposit1,069,145  10,665   1.33% 1,171,363  11,886   1.36%
Total interest-bearing deposits6,495,390  20,623   0.42% 5,710,848  27,680   0.65%
Non-interest-bearing deposits4,738,559     % 3,682,047     %
Total deposits11,233,949  20,623   0.25% 9,392,895  27,680   0.39%
Other interest-bearing liabilities:           
FHLB advances236,949  4,036   2.28% 508,247  9,953   2.62%
Other borrowings195,977  482   0.33% 120,847  209   0.23%
Junior subordinated debentures and subordinated notes181,886  4,988   3.66% 140,212  5,008   4.78%
Total borrowings614,812  9,506   2.07% 769,306  15,170   2.64%
Total funding liabilities11,848,761  30,129   0.34% 10,162,201  42,850   0.56%
Other non-interest-bearing liabilities(2)197,912      155,771     
Total liabilities12,046,673      10,317,972     
Shareholders’ equity1,617,572      1,519,801     
Total liabilities and shareholders’ equity$13,664,245      $11,837,773     
Net interest income/rate spread (tax equivalent)  $365,966   3.92%   $353,492   4.35%
Net interest margin (tax equivalent)    3.93%     4.38%
Reconciliation to reported net interest income:           
Adjustments for taxable equivalent basis  (6,102)      (4,072)   
Net interest income and margin, as reported  $359,864   3.87%   $349,420   4.33%
Additional Key Financial Ratios:           
Return on average assets    0.75%     1.27%
Return on average equity    6.36%     9.91%
Average equity/average assets    11.84%     12.84%
Average interest-earning assets/average interest-bearing liabilities  ` 174.84%     166.42%
Average interest-earning assets/average funding liabilities    104.92%     106.12%
Non-interest income/average assets    0.73%     0.70%
Non-interest expense/average assets    2.70%     2.98%
Efficiency ratio(4)    63.54%     64.23%
Adjusted efficiency ratio(5)    60.13%     61.17%


(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.6 million and $3.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.5 million and $1.1 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.
(4)Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION         
(dollars in thousands)         
          
* Non-GAAP Financial Measures         
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
          
ADJUSTED REVENUEQuarters Ended Nine Months Ended
 Sep 30, 2020 June 30, 2020 Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
Net interest income before provision for credit losses$121,026  $119,580  $116,621  $359,864  $349,420 
Total non-interest income28,222  27,720  20,866  75,107  61,667 
Total GAAP revenue149,248  147,300  137,487  434,971  411,087 
Exclude net (gain) loss on sale of securities(644) (93) 2  (815) 29 
Exclude net change in valuation of financial instruments carried at fair value(37) (2,199) 69  2,360  172 
Adjusted revenue (non-GAAP)$148,567  $145,008  $137,558  $436,516  $411,288 


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

 

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


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


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

FAQ

What is the latest dividend announced by Banner Corporation?

Banner Corporation declared a quarterly cash dividend of $0.41 per share, payable on November 12, 2020.

How did Banner Corporation's net income change in Q3 2020?

In Q3 2020, net income was $36.5 million, an increase from $23.5 million in Q2 2020 but a decrease from $39.6 million in Q3 2019.

What were the mortgage banking revenues for Banner Corporation in Q3 2020?

Mortgage banking revenues reached $16.6 million in Q3 2020, more than doubling compared to the same quarter last year.

How much did Banner Corporation increase its allowance for credit losses?

The allowance for credit losses was increased to $168.0 million in Q3 2020 due to impacts from the COVID-19 pandemic.

Banner Corp.

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