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

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 ORIGINATIONSQuarters 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 estate7,900  2,664  20,035  27,119  71,124 
Construction and land515,280  412,463  530,193  1,588,311  1,433,313 
Commercial business:         
Commercial business133,112  128,729  228,050  628,981  840,237 
SBA PPP  24,848    1,176,018   
Agricultural business11,552  16,990  25,993  76,096  85,663 
One-to four-family residential28,402  32,733  30,432  116,713  112,165 
Consumer97,416  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 land936  937  1,905 
One- to four-family3,556  2,978  3,410 
Commercial business5,407  14,867  23,015 
Agricultural business, including secured by farmland1,743  2,066  661 
Consumer2,719  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-family1,899  2,649  877 
Commercial business1,025  425  401 
Consumer130  181  398 
 3,054  3,255  2,097 
Total non-performing loans35,614  34,823  39,598 
Real estate owned (REO)816  1,795  814 
Other repossessed assets51  37  122 
Total non-performing assets$36,481  $36,655  $40,534 
Total non-performing assets to total assets0.24% 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 Mention36,598  41,575  61,189 
Substandard340,237  423,244  113,448 
Doubtful    58 
Total$9,870,982  $10,163,917  $9,305,357 


 Quarters Ended Twelve Months Ended
REAL ESTATE OWNEDDec 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 REO603   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 SPREADQuarters 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 loans7,251,101  84,634  4.64% 7,339,181  88,011  4.77% 7,134,231  93,653  5.21%
Commercial/agricultural loans2,752,352  29,145  4.21% 2,862,291  26,396  3.67% 1,853,447  23,829  5.10%
Consumer and other loans135,498  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 securities1,429,635  7,536  2.10% 1,250,759  7,333  2.33% 1,371,438  9,024  2.61%
Other securities975,166  6,634  2.71% 884,916  6,036  2.71% 418,767  3,032  2.87%
Equity securities234,822  64  0.11% 379,483  186  0.19%     %
Interest-bearing deposits with banks611,234  219  0.14% 171,894  123  0.28% 107,959  531  1.95%
FHLB stock16,361  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 assets13,516,583  131,427  3.87% 13,206,765  131,978  3.98% 11,283,761  135,178  4.75%
Non-interest-earning assets1,349,055      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 accounts2,375,015  691  0.12% 2,251,294  813  0.14% 1,999,656  2,027  0.40%
Money market accounts2,165,960  1,047  0.19% 2,096,037  1,224  0.23% 1,607,954  2,842  0.70%
Certificates of deposit916,286  2,339  1.02% 966,028  2,821  1.16% 1,189,530  4,517  1.51%
Total interest-bearing deposits6,940,444  4,392  0.25% 6,726,444  5,179  0.31% 6,026,076  9,950  0.66%
Non-interest-bearing deposits5,499,240    % 5,340,688    % 3,959,097    %
Total deposits12,439,684  4,392  0.14% 12,067,132  5,179  0.17% 9,985,173  9,950  0.40%
Other interest-bearing liabilities:                 
FHLB advances150,000  987  2.62% 150,000  988  2.62% 387,435  2,281  2.34%
Other borrowings187,560  121  0.26% 177,628  128  0.29% 126,782  121  0.38%
Junior subordinated debentures and subordinated notes247,944  2,216  3.56% 247,944  2,260  3.63% 145,339  1,566  4.27%
Total borrowings585,504  3,324  2.26% 575,572  3,376  2.33% 659,556  3,968  2.39%
Total funding liabilities13,025,188  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 liabilities13,221,153      12,835,960      10,834,411     
Shareholders’ equity1,644,485      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:                 
Return on average assets    1.04%     1.01%     1.07%
Return on average equity    9.42%     8.92%     8.33%
Average equity/average assets    11.06%     11.27%     12.88%
Average interest-earning assets/average interest-bearing liabilities    179.60%     180.86%     168.78%
Average interest-earning assets/average funding liabilities    103.77%     104.46%     106.00%
Non-interest income/average assets    0.63%     0.78%     0.65%
Non-interest expense/average assets    2.59%     2.52%     2.99%
Efficiency ratio(4)    66.76%     61.35%     67.03%
Adjusted efficiency ratio(5)    64.31%     58.02%     61.19%


(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 $1.3 million, $1.4 million, and $1.3 million for the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million, $976,000, and $469,000 for the three months ended December 31, 2020, September 30, 2020, and December 31, 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 SPREADTwelve Months Ended
 December 31, 2020 December 31, 2019
 Average Balance Interest and Dividends Yield/Cost(3) Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:           
Held for sale loans$144,220  $5,482  3.80% $126,086  $5,343  4.24%
Mortgage loans7,303,584  352,878  4.83% 6,911,067  363,241  5.26%
Commercial/agricultural loans2,526,177  103,700  4.11% 1,784,468  95,915  5.37%
Consumer and other loans147,827  9,208  6.23% 176,373  11,230  6.37%
Total loans(1)(3)10,121,808  471,268  4.66% 8,997,994  475,729  5.29%
Mortgage-backed securities1,330,355  32,188  2.42% 1,368,927  38,809  2.83%
Other securities777,378  21,839  2.81% 441,402  13,926  3.15%
Equity securities182,846  373  0.20% 169  8  4.73%
Interest-bearing deposits with banks272,725  907  0.33% 72,579  1,649  2.27%
FHLB stock18,952  947  5.00% 29,509  1,407  4.77%
Total investment securities(3)2,582,256  56,254  2.18% 1,912,586  55,799  2.92%
Total interest-earning assets12,704,064  527,522  4.15% 10,910,580  531,528  4.87%
Non-interest-earning assets1,262,170      1,078,108     
Total assets$13,966,234      $11,988,688     
Deposits:           
Interest-bearing checking accounts$1,385,252  1,479  0.11% $1,188,985  2,224  0.19%
Savings accounts2,194,418  4,257  0.19% 1,890,467  8,310  0.44%
Money market accounts1,996,870  6,275  0.31% 1,534,909  10,693  0.70%
Certificates of deposit1,030,722  13,004  1.26% 1,175,942  16,403  1.39%
Total interest-bearing deposits6,607,262  25,015  0.38% 5,790,303  37,630  0.65%
Non-interest-bearing deposits4,929,768    % 3,751,878    %
Total deposits11,537,030  25,015  0.22% 9,542,181  37,630  0.39%
Other interest-bearing liabilities:           
FHLB advances215,093  5,023  2.34% 477,796  12,234  2.56%
Other borrowings193,862  603  0.31% 122,343  330  0.27%
Junior subordinated debentures and subordinated notes198,490  7,204  3.63% 141,504  6,574  4.65%
Total borrowings607,445  12,830  2.11% 741,643  19,138  2.58%
Total funding liabilities12,144,475  37,845  0.31% 10,283,824  56,768  0.55%
Other non-interest-bearing liabilities(2)197,422      164,318     
Total liabilities12,341,897      10,448,142     
Shareholders’ equity1,624,337      1,540,546     
Total liabilities and shareholders’ equity$13,966,234      $11,988,688     
Net interest income/rate spread (tax equivalent)  $489,677  3.84%   $474,760  4.32%
Net interest margin (tax equivalent)    3.85%     4.35%
Reconciliation to reported net interest income:           
Adjustments for taxable equivalent basis  (8,376)     (5,841)  
Net interest income and margin, as reported  $481,301  3.79%   $468,919  4.30%
Additional Key Financial Ratios:           
Return on average assets    0.83%     1.22%
Return on average equity    7.14%     9.50%
Average equity/average assets    11.63%     12.85%
Average interest-earning assets/average interest-bearing liabilities    176.09%     167.03%
Average interest-earning assets/average funding liabilities    104.61%     106.09%
Non-interest income/average assets    0.71%     0.68%
Non-interest expense/average assets    2.67%     2.98%
Efficiency ratio(4)    64.35%     64.94%
Adjusted efficiency ratio(5)    60.76%     61.18%

 

(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 $4.9 million and $4.3 million for the twelve months ended December 31, 2020 and December 31, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.5 million and $1.6 million for the twelve months ended December 31, 2020 and December 31, 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 Twelve Months Ended
 Dec 31, 2020 Sep 30, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019
Net interest income before provision for credit losses$121,437   $121,026   $119,491   $481,301   $468,919  
Total non-interest income23,509   28,222   20,282   98,616   81,941  
Total GAAP revenue144,946   149,248   139,773   579,917   550,860  
Exclude net gain on sale of securities(197)  (644)  (62)  (1,012)  (33) 
Exclude net change in valuation of financial instruments carried at fair value(1,704)  (37)  36   656   208  
Adjusted revenue (non-GAAP)$143,045   $148,567   $139,747   $579,561   $551,035  


ADJUSTED EARNINGS Quarters Ended Twelve Months Ended
  Dec 31, 2020 Sep 30, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019
Net income (GAAP) $38,957   $36,548   $33,655   $115,928   $146,278  
Exclude net gain on sale of securities (197)  (644)  (62)  (1,012)  (33) 
Exclude net change in valuation of financial instruments carried at fair value (1,704)  (37)  36   656   208  
Exclude merger and acquisition-related expenses 579   5   4,419   2,062   7,544  
Exclude COVID-19 expenses 333   778      3,502     
Exclude related net tax expense (benefit) 237   (24)  (1,074)  (1,239)  (1,741) 
Exclude FHLB prepayment penalties       735      735  
Total adjusted earnings (non-GAAP) $38,205   $36,626   $37,709   $119,897   $152,991  
           
Diluted earnings per share (GAAP) $1.10   $1.03   $0.95   $3.26   $4.18  
Diluted adjusted earnings per share (non-GAAP) $1.08   $1.04   $1.07   $3.37   $4.38  


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
ADJUSTED EFFICIENCY RATIO Quarters Ended Twelve Months Ended
  Dec 31, 2020 Sep 30, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019
Non-interest expense (GAAP) $96,759   $91,567   $93,690   $373,148   $357,728  
Exclude merger and acquisition-related expenses (579)  (5)  (4,419)  (2,062)  (7,544) 
Exclude COVID-19 expenses (333)  (778)     (3,502)    
Exclude CDI amortization (1,865)  (1,864)  (2,061)  (7,732)  (8,151) 
Exclude state/municipal tax expense (1,071)  (1,196)  (917)  (4,355)  (3,880) 
Exclude REO operations 283   11   (40)  190   (303) 
Exclude FHLB prepayment penalties       (735)     (735) 
Exclude provision for credit losses - unfunded loan commitments (1,203)  (1,539)     (3,559)    
Adjusted non-interest expense (non-GAAP) $91,991   $86,196   $85,518   $352,128   $337,115  
           
Net interest income before provision for credit losses (GAAP) $121,437   $121,026   $119,491   $481,301   $468,919  
Non-interest income (GAAP) 23,509   28,222   20,282   98,616   81,941  
Total revenue 144,946   149,248   139,773   579,917   550,860  
Exclude net gain on sale of securities (197)  (644)  (62)  (1,012)  (33) 
Exclude net change in valuation of financial instruments carried at fair value (1,704)  (37)  36   656   208  
Adjusted revenue (non-GAAP) $143,045   $148,567   $139,747   $579,561   $551,035  
           
Efficiency ratio (GAAP) 66.76 % 61.35 % 67.03 % 64.35 % 64.94 %
Adjusted efficiency ratio (non-GAAP) 64.31 % 58.02 % 61.19 % 60.76 % 61.18 %


TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS Dec 31, 2020 Sep 30, 2020 Dec 31, 2019
Shareholders’ equity (GAAP) $1,666,264  $1,646,529  $1,594,034 
Exclude goodwill and other intangible assets, net 394,547  396,412  402,279 
Tangible common shareholders’ equity (non-GAAP) $1,271,717  $1,250,117  $1,191,755 
       
Total assets (GAAP) $15,031,623  $14,642,075  $12,604,031 
Exclude goodwill and other intangible assets, net 394,547  396,412  402,279 
Total tangible assets (non-GAAP) $14,637,076  $14,245,663  $12,201,752 
Common shareholders’ equity to total assets (GAAP) 11.09% 11.25% 12.65%
Tangible common shareholders’ equity to tangible assets (non-GAAP) 8.69% 8.78% 9.77%
       
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE      
Tangible common shareholders’ equity (non-GAAP) $1,271,717  $1,250,117  $1,191,755 
Common shares outstanding at end of period 35,159,200  35,158,568  35,751,576 
Common shareholders’ equity (book value) per share (GAAP) $47.39  $46.83  $44.59 
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $36.17  $35.56  $33.33 

 

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

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