Banner Corporation Reports Net Income of $49.9 Million, or $1.44 Per Diluted Share, for Third Quarter 2021; Announces Banner Forward; Declares Quarterly Cash Dividend of $0.41 Per Share

Wednesday, 20. October 2021 22:00

WALLA WALLA, Wash., Oct. 20, 2021 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $49.9 million, or $1.44 per diluted share, for the third quarter of 2021, an 8% decrease compared to $54.4 million, or $1.56 per diluted share, for the second quarter of 2021 and a 36% increase compared to $36.5 million, or $1.03 per diluted share, for the third quarter of 2020. Banner’s third quarter 2021 results include $8.6 million in recapture of provision for credit losses, compared to $10.3 million in recapture of provision for credit losses in the preceding quarter and $15.2 million in provision for credit losses in the third quarter of 2020. The third quarter 2020 provision for credit losses was primarily the result of the impact of the COVID-19 pandemic. In the first nine months of 2021, net income was $151.1 million, or $4.32 per diluted share, compared to net income of $77.0 million, or $2.17 per diluted share for the same period a year earlier. Banner’s first nine months of 2021 results include $28.1 million in recapture of provision for credit losses, compared to $67.3 million in provision for credit losses in the first nine months of 2020.

Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable November 12, 2021, to common shareholders of record on November 02, 2021.

“Our third quarter 2021 performance continues to demonstrate the success of our super community bank model, which is based on responsive service that generates client loyalty and attracts new client relationships,” said Mark Grescovich, President and CEO. “We benefited from continued core deposit growth and an acceleration of SBA PPP loan fee income as a result of SBA PPP loan forgiveness. The unprecedented level of market liquidity and our continued focus on building client relationships contributed to our core deposits increasing 18% compared to September 30, 2020. Additionally, Banner had provided 13,293 SBA PPP loans totaling nearly $1.61 billion as of September 30, 2021. As of quarter end, SBA forgiveness had been received for 10,548 SBA PPP loans totaling $1.23 billion. Our essential onsite employees, such as those working in our branches, continue to serve clients in person. In July 2021, we began to normalize our operations by returning additional groups of employees back to bank worksites; however, due to the recent increases in COVID-19 cases, we have currently suspended returning our remaining employees to bank worksites.”

“After a comprehensive review of our business, we implemented Banner Forward, a bank-wide initiative to drive revenue growth and reduce operating expense,” said Grescovich. “Implementation of this plan commenced during the third quarter of 2021 with full implementation expected in 2023, with the goal of producing meaningful results in the near term while staying true to our mission and value proposition of being connected, knowledgeable and responsive to our clients, communities and employees. The focus of Banner Forward is to accelerate growth in commercial banking, deepen relationships with retail customers, advance technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes. As part of Banner Forward, we have identified potential additional opportunities to rationalize our physical footprint. During the third quarter of 2021, we incurred expenses of $7.6 million related to Banner Forward.”

“Due to improvements in economic forecasts and continued solid performance of the loan portfolio during the current quarter, we recorded an $8.6 million recapture to our provision for credit losses during the current quarter. This compares to a $10.3 million recapture to our provision for credit losses during the preceding quarter and a $15.2 million provision for credit losses in the third quarter a year ago. Our allowance for credit losses - loans remains strong at 1.52% of total loans and 485% of non-performing loans at September 30, 2021, compared to 1.53% of total loans and 481% of non-performing loans at June 30, 2021,” said Grescovich.

At September 30, 2021, Banner Corporation had $16.64 billion in assets, $9.08 billion in net loans and $14.16 billion in deposits. Banner operates 150 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2021 Highlights

  • Revenues increased 4% to $155.5 million, compared to $149.9 million in the preceding quarter, and increased 4% when compared to $149.2 million in the third quarter a year ago.
  • Net interest income, before the recapture of provision for credit losses, increased to $130.1 million in the third quarter of 2021, compared to $127.6 million in the preceding quarter and $121.0 million in the third quarter a year ago.
  • Net interest margin on a tax equivalent basis was 3.47%, compared to 3.52% in the preceding quarter and 3.72% in the third quarter a year ago.
  • Mortgage banking revenues increased 30% to $9.8 million, compared to $7.5 million in the preceding quarter, and decreased 41% compared to $16.6 million in the third quarter a year ago.
  • Return on average assets was 1.20%, compared to 1.36% in the preceding quarter and 1.01% in the third quarter a year ago.
  • Net loans receivable decreased to $9.08 billion at September 30, 2021, compared to $9.51 billion at June 30, 2021, and decreased 9% when compared to $10.00 billion at September 30, 2020.
  • Non-performing assets decreased to $29.7 million, or 0.18% of total assets, at September 30, 2021, compared to $31.5 million, or 0.19% of total assets in the preceding quarter, and decreased from $36.7 million, or 0.25% of total assets, at September 30, 2020.
  • The allowance for credit losses - loans was $139.9 million, or 1.52% of total loans receivable, as of September 30, 2021, compared to $148.0 million, or 1.53% of total loans receivable as of June 30, 2021 and $168.0 million or 1.65% of total loans receivable as of September 30, 2020.
  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 4% to $13.31 billion at September 30, 2021, compared to $12.76 billion at June 30, 2021, and increased 18% compared to $11.30 billion a year ago. Core deposits represented 94% of total deposits at September 30, 2021.
  • Dividends to shareholders were $0.41 per share in the quarter ended September 30, 2021.
  • Common shareholders’ equity per share increased 1% to $48.67 at September 30, 2021, compared to $48.31 at the preceding quarter end, and increased 4% from $46.83 a year ago.
  • Tangible common shareholders’ equity per share* increased 1% to $37.30 at September 30, 2021, compared to $36.99 at the preceding quarter end, and increased 5% from $35.56 a year ago.
  • Banner repurchased 300,000 shares of its common stock during the quarter at an average cost of $55.50 per share.

*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 and non-interest income) and the adjusted efficiency ratio (which excludes merger and acquisition-related expenses, COVID-19 expenses, Banner Forward expenses, amortization of core deposit intangibles, real estate owned operations 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

In September 2021, Banner completed the consolidation of five branches as it continues to see migration of transactions to the digital space, reducing in-branch transactions. During the past year, client adoption of mobile and digital banking accelerated, while physical branch transaction volume declined. Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic related restrictions have ended.

Income Statement Review

Net interest income, before the recapture of provision for credit losses, was $130.1 million in the third quarter of 2021, compared to $127.6 million in the preceding quarter and $121.0 million in the third quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.47% for the third quarter of 2021, a five basis-point decrease compared to 3.52% in the preceding quarter and a 25 basis-point decrease compared to 3.72% in the third quarter a year ago.

“Higher core deposit balances, resulting in an increase in low yielding short term investments, adversely affected our net interest margin during the quarter. This impact was partly offset by higher interest income, primarily as a result of the decline in low yielding SBA PPP loans and a corresponding acceleration of the recognition of deferred loan fee income due to loan repayments from SBA loan forgiveness,” said Grescovich. “Additionally, the ongoing low interest rate environment continues to place downward pressure on loan yields.” Acquisition accounting adjustments added three basis points to the net interest margin in both the current and preceding quarter and seven basis points in the third quarter a year ago. The total purchase discount for acquired loans was $11.5 million at September 30, 2021, compared to $12.5 million at June 30, 2021, and $17.9 million at September 30, 2020. In the first nine months of 2021, Banner’s net interest margin on a tax equivalent basis was 3.48% compared to 3.93% in the first nine months of 2020.

Average interest-earning asset yields decreased six basis points to 3.62% in the third quarter compared to 3.68% for the preceding quarter and decreased 36 basis points compared to 3.98% in the third quarter a year ago. Average loan yields increased 18 basis points to 4.88% compared to 4.70% in the preceding quarter and increased 41 basis points compared to 4.47% in the third quarter a year ago. The increase in average loan yields during the current quarter compared to the preceding quarter was primarily the result of the decline in the average balance of low yielding SBA PPP loans due to loan repayments from SBA loan forgiveness during the last two quarters, partially offset by lower rates on new originations and adjustable-rate loans resetting to lower current market rates. Loan discount accretion added five basis points to average loan yields in both the current and preceding quarter and nine basis points in the third quarter a year ago. Deposit costs were 0.08% in the third quarter of 2021, a one basis-point decrease compared to the preceding quarter and a nine basis-point decrease compared to the third quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020. The total cost of funds was 0.16% during the third quarter of 2021, a one basis-point decrease compared to the preceding quarter and an 11 basis-point decrease compared to the third quarter a year ago.

Banner recorded an $8.6 million recapture of provision for credit losses in the current quarter (comprised of an $8.9 million recapture of credit losses - loans and a $218,000 provision for credit losses - unfunded loan commitments). This recapture compares to a $10.3 million recapture of provision for credit losses in the prior quarter (comprised of an $8.1 million recapture of provision for credit losses - loans and a $2.2 million recapture of provision for credit losses - unfunded loan commitments) and a $15.2 million provision for credit losses in the third quarter a year ago (comprised of a $13.6 million provision for credit losses - loans and a $1.5 million recapture of provision for credit losses - unfunded loan commitments). The recapture of provision for credit losses for the current and preceding quarters primarily reflects improvement in forecasted economic indicators and a decrease in adversely classified loans. The provision for credit losses recorded in the third quarter a year ago primarily reflected expected lifetime credit losses based upon the economic 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.

Total non-interest income was $25.3 million in the third quarter of 2021, compared to $22.3 million in the preceding quarter and $28.2 million in the third quarter a year ago. Deposit fees and other service charges were $10.5 million in the third quarter of 2021, compared to $9.8 million in the preceding quarter and $8.7 million in the third quarter a year ago. The increase in deposit fees and other service charges from the third quarter a year ago is primarily a result of increased transaction deposit account activity and higher fees on certain transactions. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $9.8 million in the third quarter, compared to $7.5 million in the preceding quarter and decreased compared to $16.6 million in the third quarter of 2020. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale margin on one- to four-family held-for-sale loans and higher gains on the sale of multifamily held-for-sale loans. The decrease compared to the third quarter of 2020 was primarily due to a decrease in the gain on sale margin on one- to four-family held-for-sale loans, partially offset by higher gains on the sale of multifamily held-for-sale loans as well as a reduction in the volume of one- to four-family loans sold. Home purchase activity accounted for 68% of one- to four-family mortgage loan originations in the third quarter of 2021, compared to 66% in the prior quarter and 56% in the third quarter of 2020. In the first nine months of 2021, total non-interest income decreased 4% to $71.9 million, compared to $75.1 million in the first nine months of 2020.

Banner’s third quarter 2021 results included a $1.8 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, and a $56,000 net gain on the sale of securities. In the preceding quarter, results included a $58,000 net gain for fair value adjustments and a $77,000 net gain on the sale of securities. In the third quarter a year ago, results included a $37,000 net gain for fair value adjustments and a $644,000 net gain on the sale of securities.

Total revenue increased 4% to $155.5 million for the third quarter of 2021, compared to $149.9 million in the preceding quarter, and increased 4% compared to $149.2 million in the third quarter a year ago. Year-to-date, total revenues increased 3% to $447.3 million compared to $435.0 million for the same period one year earlier. Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $153.6 million in the third quarter of 2021, compared to $149.8 million in the preceding quarter and $148.6 million in the third quarter of 2020. In the first nine months of the year, adjusted revenue* was $444.8 million, compared to $436.5 million in the first nine months of 2020.

Total non-interest expense was $102.1 million in the third quarter of 2021, compared to $92.6 million in the preceding quarter and $90.0 million in the third quarter of 2020. The increase in non-interest expense for the current quarter compared to the prior quarter primarily reflects an $8.0 million increase in professional and legal expenses, primarily due to increased consultant expense, which included $5.8 million of expense related to the Banner Forward initiative in the current quarter, compared to $1.5 million in the prior quarter, as well as a $4.0 million accrual recorded related to pending litigation during the current quarter. Additionally, payment and card processing services expense increased $1.2 million primarily reflecting an increase in fraud related losses. These increases for the current quarter were partially offset by a $2.1 million decrease from the preceding quarter in salary and employee benefits expense related to a reduction in staffing. The year-over-year quarterly increase in non-interest expense also reflects increases in payment and card processing services expense, professional and legal expenses, and miscellaneous non-interest expense. The year-over-year quarterly increases in non-interest expense were partially offset by decreases in salary and employee benefits and COVID-19 expenses. COVID-19 expenses were $44,000 for the third quarter of 2021, compared to $117,000 for the preceding quarter and $778,000 in the third quarter a year ago. Year-to-date, total non-interest expense was $288.3 million, compared to $274.0 million in the same period a year earlier. Banner’s efficiency ratio was 65.70% for the current quarter, compared to 61.79% in the preceding quarter and 60.32% in the year ago quarter. Banner’s adjusted efficiency ratio* was 59.65% for the current quarter, compared to 58.50% in the preceding quarter and 58.02% in the year ago quarter.

For the third quarter of 2021, Banner had $12.1 million in state and federal income tax expense for an effective tax rate of 19.5%, 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 to $16.64 billion at September 30, 2021, compared to $16.18 billion at June 30, 2021, and increased 14% when compared to $14.64 billion at September 30, 2020. The total of securities and interest-bearing deposits held at other banks was $6.03 billion at September 30, 2021, compared to $5.19 billion at June 30, 2021 and $2.63 billion at September 30, 2020. The average effective duration of Banner's securities portfolio was approximately 4.4 years at September 30, 2021, compared to 4.0 years at September 30, 2020.

Net loans receivable decreased 4% to $9.08 billion at September 30, 2021, compared to $9.51 billion at June 30, 2021, and decreased 9% when compared to $10.00 billion at September 30, 2020. The decrease in net loans compared to the prior quarter primarily reflects the forgiveness of SBA PPP loans. SBA PPP loans decreased 62% to $310.2 million at September 30, 2021, compared to $825.1 million at June 30, 2021, and decreased 73% when compared to $1.15 billion at September 30, 2020. The decrease in SBA PPP loans was partially offset by increases in commercial real estate, multifamily real estate and one- to four-family loans. Commercial real estate and multifamily real estate loans increased 2% to $4.24 billion at September 30, 2021, compared to $4.14 billion at June 30, 2021, and increased 4% compared to $4.07 billion a year ago. Commercial business loans decreased 21% to $2.12 billion at September 30, 2021, compared to $2.68 billion at June 30, 2021, and decreased 32% compared to $3.11 billion a year ago, primarily due to SBA PPP loans forgiven. Excluding PPP loans, commercial business loans decreased 3% to $1.82 billion at September 30, 2021, compared to $1.87 billion at June 30, 2021, and decreased 7% compared to $1.96 billion a year ago. Agricultural business loans increased to $287.5 million at September 30, 2021, compared to $265.4 million three months earlier and decreased from $326.2 million a year ago. Total construction, land and land development loans were $1.33 billion at September 30, 2021, a 3% decrease from $1.37 billion at June 30, 2021, and a 5% increase compared to $1.27 billion a year earlier. Consumer loans increased slightly to $561.2 million at September 30, 2021, compared to $560.7 million at June 30, 2021, and decreased from $622.8 million a year ago. One- to four-family loans increased to $682.4 million at September 30, 2021, compared to $637.7 million at June 30, 2021, and decreased from $771.4 million a year ago. The year over year decrease primarily reflects held for investment loans being refinanced and sold as held for sale loans.

Loans held for sale were $63.7 million at September 30, 2021, compared to $71.7 million at June 30, 2021, and $185.9 million at September 30, 2020. The volume of one- to four- family residential mortgage loans sold was $232.2 million in the current quarter, compared to $266.7 million in the preceding quarter and $327.7 million in the third quarter a year ago. During the third quarter of 2021, Banner sold $96.1 million in multifamily loans, compared to $83.9 million in the preceding quarter and $108.6 million in the third quarter a year ago.

Total deposits increased 4% to $14.16 billion at September 30, 2021, compared to $13.64 billion at June 30, 2021, and increased 16% when compared to $12.22 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic. Non-interest-bearing account balances increased 5% to $6.40 billion at September 30, 2021, compared to $6.09 billion at June 30, 2021, and increased 18% compared to $5.41 billion a year ago. Core deposits were 94% of total deposits at both September 30, 2021 and June 30, 2021 and increased 18% compared to a year ago. Certificates of deposit decreased to $851.1 million at September 30, 2021, compared to $873.0 million at June 30, 2021, and decreased 7% compared to $915.4 million a year earlier. FHLB borrowings decreased to $50.0 million at September 30, 2021, compared to $100.0 million at June 30, 2021 and decreased from $150.0 million a year ago.

At September 30, 2021, total common shareholders’ equity was $1.67 billion, or 10.02% of assets, compared to $1.67 billion or 10.32% of assets at June 30, 2021, and $1.65 billion or 11.25% of assets a year ago. At September 30, 2021, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.28 billion, or 7.86% of tangible assets*, compared to $1.28 billion, or 8.09% of tangible assets, at June 30, 2021, and $1.25 billion, or 8.78% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $37.30 at September 30, 2021, compared to $35.56 per share a year ago.

Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At September 30, 2021, Banner's common equity Tier 1 capital ratio was 11.25%, its Tier 1 leverage capital to average assets ratio was 8.79%, and its total capital to risk-weighted assets ratio was 14.55%.

Credit Quality

The allowance for credit losses - loans was $139.9 million at September 30, 2021, or 1.52% of total loans receivable outstanding and 485% of non-performing loans, compared to $148.0 million at June 30, 2021, or 1.53% of total loans receivable outstanding and 481% of non-performing loans, and $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% 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 $10.1 million at September 30, 2021, compared to $9.9 million at June 30, 2021 and $12.1 million at September 30, 2020. Net loan recoveries totaled $756,000 in the third quarter of 2021, compared to net loan recoveries of $55,000 in the preceding quarter and $2.0 million of net loan charge-offs in the third quarter a year ago. Non-performing loans were $28.9 million at September 30, 2021, compared to $30.8 million at June 30, 2021, and $34.8 million a year ago. Real estate owned and other repossessed assets were $869,000 at September 30, 2021, compared to $780,000 at June 30, 2021, and $1.8 million a year ago.

Banner’s total substandard loans were $225.8 million at September 30, 2021, compared to $272.8 million at June 30, 2021, and $423.2 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 $29.7 million, or 0.18% of total assets, at September 30, 2021, compared to $31.5 million, or 0.19% of total assets, at June 30, 2021, and $36.7 million, or 0.25% of total assets, a year ago.

At September 30, 2021, Banner had 41 mortgage loans totaling $12.4 million operating under forbearance agreements due to COVID-19. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance.

Conference Call

Banner will host a conference call on Thursday, October 21, 2021, 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 10160533, or at www.bannerbank.com.

About the Company

Banner Corporation is a $16.64 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

The COVID-19, pandemic is adversely affecting us, our clients, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on client behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; (16) the costs associated with Banner Forward and (17) 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, 2021 Jun 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
           
INTEREST INCOME:          
Loans receivable $116,487  $115,391  $116,716  $340,802  $350,815 
Mortgage-backed securities 11,695  11,437  7,234  32,503  24,354 
Securities and cash equivalents 7,686  6,737  5,631  20,649  14,824 
  135,868  133,565  129,581  393,954  389,993 
INTEREST EXPENSE:          
Deposits 2,749  3,028  5,179  9,386  20,623 
Federal Home Loan Bank advances 655  655  988  2,244  4,036 
Other borrowings 125  124  128  358  482 
Junior subordinated debentures and subordinated notes 2,193  2,204  2,260  6,605  4,988 
  5,722  6,011  8,555  18,593  30,129 
Net interest income 130,146  127,554  121,026  375,361  359,864 
(RECAPTURE)/PROVISION FOR CREDIT LOSSES (8,638) (10,256) 15,180  (28,145) 67,273 
Net interest income after (recapture)/provision for credit losses 138,784  137,810  105,846  403,506  292,591 
NON-INTEREST INCOME:          
Deposit fees and other service charges 10,457  9,758  8,742  29,154  26,091 
Mortgage banking operations 9,752  7,478  16,562  28,670  40,891 
Bank-owned life insurance 1,245  1,245  1,286  3,797  4,653 
Miscellaneous 2,046  3,720  951  7,808  5,017 
  23,500  22,201  27,541  69,429  76,652 
Net gain on sale of securities 56  77  644  618  815 
Net change in valuation of financial instruments carried at fair value 1,778  58  37  1,895  (2,360)
Total non-interest income 25,334  22,336  28,222  71,942  75,107 
NON-INTEREST EXPENSE:          
Salary and employee benefits 59,799  61,935  61,171  186,553  184,494 
Less capitalized loan origination costs (8,290) (8,768) (8,517) (26,754) (25,433)
Occupancy and equipment 13,153  12,823  13,022  38,965  39,114 
Information / computer data services 6,110  5,602  6,090  17,915  17,984 
Payment and card processing services 6,181  4,975  4,044  15,482  12,135 
Professional and legal expenses 12,324  4,371  2,368  20,023  6,450 
Advertising and marketing 1,521  1,181  1,105  3,965  3,584 
Deposit insurance expense 1,469  1,241  1,628  4,243  4,968 
State/municipal business and use taxes 1,219  1,083  1,196  3,367  3,284 
Real estate operations 53  118  (11) (71) 93 
Amortization of core deposit intangibles 1,575  1,711  1,864  4,997  5,867 
Miscellaneous 6,977  6,156  5,285  18,642  16,841 
  102,091  92,428  89,245  287,327  269,381 
COVID-19 expenses 44  117  778  309  3,169 
Merger and acquisition-related expenses 10  79  5  660  1,483 
Total non-interest expense 102,145  92,624  90,028  288,296  274,033 
Income before provision for income taxes 61,973  67,522  44,040  187,152  93,665 
PROVISION FOR INCOME TAXES 12,089  13,140  7,492  36,031  16,694 
NET INCOME $49,884  $54,382  $36,548  $151,121  $76,971 
Earnings per share available to common shareholders:          
Basic $1.45  $1.57  $1.04  $4.35  $2.18 
Diluted $1.44  $1.56  $1.03  $4.32  $2.17 
Cumulative dividends declared per common share $0.41  $0.41  $0.41  $1.23  $0.82 
Weighted average common shares outstanding:          
Basic 34,446,510  34,736,639  35,193,109  34,716,914  35,285,567 
Diluted 34,669,492  34,933,714  35,316,679  35,012,228  35,524,771 
(Decrease) increase in common shares outstanding (298,897) (184,455) 669  (907,209) (593,008)
                


FINANCIAL CONDITION         Percentage Change
(in thousands except shares and per share data) Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020 Prior Qtr Prior Yr Qtr
             
ASSETS            
Cash and due from banks $392,035   $329,359   $311,899   $289,144   19.0 % 35.6 %
Interest-bearing deposits 1,808,547   1,138,572   922,284   416,394   58.8 % 334.3 %
Total cash and cash equivalents 2,200,582   1,467,931   1,234,183   705,538   49.9 % 211.9 %
Securities - trading 26,875   25,097   24,980   23,276   7.1 % 15.5 %
Securities - available for sale 3,446,575   3,275,979   2,322,593   1,758,384   5.2 % 96.0 %
Securities - held to maturity 447,708   455,256   421,713   429,033   (1.7)% 4.4 %
Total securities 3,921,158   3,756,332   2,769,286   2,210,693   4.4 % 77.4 %
Equity securities          450,255   nm (100.0)%
Federal Home Loan Bank stock 12,000   14,001   16,358   16,363   (14.3)% (26.7)%
Securities purchased under agreements to resell 300,000   300,000          % nm
Loans held for sale 63,678   71,741   243,795   185,938   (11.2)% (65.8)%
Loans receivable 9,218,384   9,654,181   9,870,982   10,163,917   (4.5)% (9.3)%
Allowance for credit losses - loans (139,915)  (148,009)  (167,279)  (167,965)  (5.5)% (16.7)%
Net loans receivable 9,078,469   9,506,172   9,703,703   9,995,952   (4.5)% (9.2)%
Accrued interest receivable 43,644   46,979   46,617   48,321   (7.1)% (9.7)%
Real estate owned (REO) held for sale, net 852   763   816   1,795   11.7 % (52.5)%
Property and equipment, net 151,503   156,063   164,556   171,576   (2.9)% (11.7)%
Goodwill 373,121   373,121   373,121   373,121    %  %
Other intangibles, net 16,429   18,004   21,426   23,291   (8.7)% (29.5)%
Bank-owned life insurance 192,950   192,677   191,830   191,755   0.1 % 0.6 %
Operating lease right-of-use assets 58,523   55,287   55,367   58,114   5.9 % 0.7 %
Other assets 224,970   222,786   210,565   209,363   1.0 % 7.5 %
Total assets $16,637,879   $16,181,857   $15,031,623   $14,642,075   2.8 % 13.6 %
LIABILITIES            
Deposits:            
Non-interest-bearing $6,400,864   $6,090,063   $5,492,924   $5,412,570   5.1 % 18.3 %
Interest-bearing transaction and savings accounts 6,912,759   6,673,598   6,159,052   5,887,419   3.6 % 17.4 %
Interest-bearing certificates 851,054   873,047   915,320   915,352   (2.5)% (7.0)%
Total deposits 14,164,677   13,636,708   12,567,296   12,215,341   3.9 % 16.0 %
Advances from Federal Home Loan Bank 50,000   100,000   150,000   150,000   (50.0)% (66.7)%
Customer repurchase agreements and other borrowings 247,358   237,736   184,785   176,983   4.0 % 39.8 %
Subordinated notes, net 98,472   98,380   98,201   98,114   0.1 % 0.4 %
Junior subordinated debentures at fair value 124,853   117,520   116,974   109,821   6.2 % 13.7 %
Operating lease liabilities 62,946   59,117   59,343   61,869   6.5 % 1.7 %
Accrued expenses and other liabilities 175,960   216,399   143,300   138,169   (18.7)% 27.4 %
Deferred compensation 46,494   46,786   45,460   45,249   (0.6)% 2.8 %
Total liabilities 14,970,760   14,512,646   13,365,359   12,995,546   3.2 % 15.2 %
SHAREHOLDERS’ EQUITY            
Common stock 1,297,145   1,311,455   1,349,879   1,347,612   (1.1)% (3.7)%
Retained earnings 355,035   319,505   247,316   222,959   11.1 % 59.2 %
Other components of shareholders’ equity 14,939   38,251   69,069   75,958   (60.9)% (80.3)%
Total shareholders’ equity 1,667,119   1,669,211   1,666,264   1,646,529   (0.1)% 1.3 %
Total liabilities and shareholders’ equity $16,637,879   $16,181,857   $15,031,623   $14,642,075   2.8 % 13.6 %
Common Shares Issued:            
Shares outstanding at end of period 34,251,991   34,550,888   35,159,200   35,158,568      
Common shareholders’ equity per share (1) $48.67   $48.31   $47.39   $46.83      
Common shareholders’ tangible equity per share (1) (2) $37.30   $36.99   $36.17   $35.56      
Common shareholders’ tangible equity to tangible assets (2) 7.86 % 8.09 % 8.69 % 8.78 %    
Consolidated Tier 1 leverage capital ratio 8.79 % 8.86 % 9.50 % 9.56 %    


(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, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020 Prior Qtr Prior Yr Qtr
             
Commercial real estate:            
Owner-occupied $1,122,275  $1,066,237  $1,076,467  $1,049,877  5.3 % 6.9 %
Investment properties 1,980,284  1,950,211  1,955,684  1,991,258  1.5 % (0.6)%
Small balance CRE 601,751  621,102  573,849  597,971  (3.1)% 0.6 %
Multifamily real estate 532,760  504,445  428,223  426,659  5.6 % 24.9 %
Construction, land and land development:            
Commercial construction 170,205  182,868  228,937  220,285  (6.9)% (22.7)%
Multifamily construction 278,184  295,661  305,527  291,105  (5.9)% (4.4)%
One- to four-family construction 571,431  603,895  507,810  518,085  (5.4)% 10.3 %
Land and land development 308,164  290,404  248,915  240,803  6.1 % 28.0 %
Commercial business:            
Commercial business 1,039,731  1,124,359  1,133,989  1,193,651  (7.5)% (12.9)%
SBA PPP 306,976  807,172  1,044,472  1,149,968  (62.0)% (73.3)%
Small business scored 775,554  743,975  743,451  763,824  4.2 % 1.5 %
Agricultural business, including secured by farmland:            
Agricultural business, including secured by farmland 284,255  247,467  299,949  326,169  14.9 % (12.9)%
SBA PPP 3,214  17,962      (82.1)% nm
One- to four-family residential 682,368  637,701  717,939  771,431  7.0 % (11.5)%
Consumer:            
Consumer—home equity revolving lines of credit 462,819  458,915  491,812  504,523  0.9 % (8.3)%
Consumer—other 98,413  101,807  113,958  118,308  (3.3)% (16.8)%
Total loans receivable $9,218,384  $9,654,181  $9,870,982  $10,163,917  (4.5)% (9.3)%
Restructured loans performing under their restructured terms $5,273  $5,472  $6,673  $5,790     
Loans 30 - 89 days past due and on accrual $6,911  $5,656  $12,291  $18,158     
Total delinquent loans (including loans on non-accrual), net $18,619  $23,582  $36,131  $37,464     
Total delinquent loans  /  Total loans receivable 0.20% 0.24% 0.37% 0.37%    


LOANS BY GEOGRAPHIC LOCATION           Percentage Change
  Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020 Prior Qtr Prior Yr Qtr
  Amount Percentage Amount Amount Amount    
               
Washington $4,319,008  46.9% $4,541,792  $4,647,553  $4,767,113  (4.9)% (9.4)%
California 2,160,280  23.4% 2,246,580  2,279,749  2,316,739  (3.8)% (6.8)%
Oregon 1,679,452  18.2% 1,753,285  1,792,156  1,858,465  (4.2)% (9.6)%
Idaho 536,128  5.8% 525,610  537,996  576,983  2.0 % (7.1)%
Utah 89,620  1.0% 92,103  80,704  76,314  (2.7)% 17.4 %
Other 433,896  4.7% 494,811  532,824  568,303  (12.3)% (23.7)%
Total loans receivable $9,218,384  100.0% $9,654,181  $9,870,982  $10,163,917  (4.5)% (9.3)%
                            


ADDITIONAL FINANCIAL INFORMATION 
(dollars in thousands) 
  
LOAN ORIGINATIONSQuarters Ended
 Sep 30, 2021 Jun 30, 2021 Sep 30, 2020
Commercial real estate$174,827  $103,415  $74,400 
Multifamily real estate26,155  45,674  2,664 
Construction and land496,386  509,828  412,463 
Commercial business:     
Commercial business229,859  181,996  128,729 
SBA PPP907  55,990  24,848 
Agricultural business9,223  12,546  16,990 
One-to four-family residential49,594  47,086  32,733 
Consumer145,102  131,424  132,100 
Total loan originations (excluding loans held for sale)$1,132,053  $1,087,959  $824,927 
            


ADDITIONAL FINANCIAL INFORMATION      
(dollars in thousands)      
  Quarters Ended
CHANGE IN THE Sep 30, 2021 Jun 30, 2021 Sep 30, 2020
ALLOWANCE FOR CREDIT LOSSES - LOANS      
Balance, beginning of period $148,009   $156,054   $156,352  
(Recapture)/provision for credit losses - loans (8,850)  (8,100)  13,641  
Recoveries of loans previously charged off:      
Commercial real estate 923   147   23  
One- to four-family real estate 19   20   94  
Commercial business 230   321   246  
Agricultural business, including secured by farmland 17   8     
Consumer 227   97   82  
  1,416   593   445  
Loans charged off:      
Commercial real estate    (3)  (379) 
One- to four-family real estate       (72) 
Commercial business (362)  (123)  (1,297) 
Agricultural business, including secured by farmland (179)  (2)  (492) 
Consumer (119)  (410)  (233) 
  (660)  (538)  (2,473) 
Net recoveries (charge-offs) 756   55   (2,028) 
Balance, end of period $139,915   $148,009   $167,965  
Net recoveries (charge-offs) / Average loans receivable 0.008 % 0.001 % (0.019)%


       
ALLOCATION OF      
ALLOWANCE FOR CREDIT LOSSES - LOANS Sep 30, 2021 Jun 30, 2021 Sep 30, 2020
Specific or allocated credit loss allowance:      
Commercial real estate $57,215  $60,349  $59,705 
Multifamily real estate 6,657  5,807  3,256 
Construction and land 29,342  30,899  39,477 
One- to four-family real estate 9,460  9,800  12,868 
Commercial business 26,873  30,830  35,369 
Agricultural business, including secured by farmland 3,177  3,256  5,051 
Consumer 7,191  7,068  12,239 
Total allowance for credit losses - loans $139,915  $148,009  $167,965 
Allowance for credit losses - loans / Total loans receivable 1.52% 1.53% 1.65%
Allowance for credit losses - loans / Non-performing loans 485% 481% 482%


  Quarters Ended
CHANGE IN THE Sep 30, 2021 Jun 30, 2021 Sep 30, 2020
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS      
Balance, beginning of period $9,909  $12,077   $10,555 
Provision/(recapture) for credit losses - unfunded loan commitments 218  (2,168)  1,539 
Balance, end of period $10,127  $9,909   $12,094 
              


ADDITIONAL FINANCIAL INFORMATION       
(dollars in thousands)       
 Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020
NON-PERFORMING ASSETS       
Loans on non-accrual status:       
Secured by real estate:       
Commercial$14,931  $17,427  $18,199  $7,824 
Construction and land354  541  936  937 
One- to four-family3,182  4,007  3,556  2,978 
Commercial business2,700  3,673  5,407  14,867 
Agricultural business, including secured by farmland1,022  1,200  1,743  2,066 
Consumer1,850  1,799  2,719  2,896 
 24,039  28,647  32,560  31,568 
Loans more than 90 days delinquent, still on accrual:       
Secured by real estate:       
Commercial3,955  911     
One- to four-family772  579  1,899  2,649 
Commercial business61  495  1,025  425 
Consumer34  131  130  181 
 4,822  2,116  3,054  3,255 
Total non-performing loans28,861  30,763  35,614  34,823 
REO852  763  816  1,795 
Other repossessed assets17  17  51  37 
Total non-performing assets$29,730  $31,543  $36,481  $36,655 
Total non-performing assets to total assets0.18% 0.19% 0.24% 0.25%


 Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020
LOANS BY CREDIT RISK RATING       
        
Pass$8,956,604  $9,315,264  $9,494,147  $9,699,098 
Special Mention36,001  66,103  36,598  41,575 
Substandard225,779  272,814  340,237  423,244 
Total$9,218,384  $9,654,181  $9,870,982  $10,163,917 


 Quarters Ended Nine Months Ended
REAL ESTATE OWNEDSep 30, 2021 Jun 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Balance, beginning of period$763  $340  $2,400   $816   $814  
Additions from loan foreclosures89  423     512   1,588  
Proceeds from dispositions of REO    (707)  (783)  (805) 
Gain on sale of REO    120   307   216  
Valuation adjustments in the period    (18)     (18) 
Balance, end of period$852  $763  $1,795   $852   $1,795  


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
             
DEPOSIT COMPOSITION         Percentage Change
  Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020 Prior Qtr Prior Yr Qtr
             
Non-interest-bearing $6,400,864  $6,090,063  $5,492,924  $5,412,570  5.1 % 18.3 %
Interest-bearing checking 1,799,657  1,736,696  1,569,435  1,434,224  3.6 % 25.5 %
Regular savings accounts 2,773,995  2,646,302  2,398,482  2,332,287  4.8 % 18.9 %
Money market accounts 2,339,107  2,290,600  2,191,135  2,120,908  2.1 % 10.3 %
Total interest-bearing transaction and savings accounts 6,912,759  6,673,598  6,159,052  5,887,419  3.6 % 17.4 %
Total core deposits 13,313,623  12,763,661  11,651,976  11,299,989  4.3 % 17.8 %
Interest-bearing certificates 851,054  873,047  915,320  915,352  (2.5)% (7.0)%
Total deposits $14,164,677  $13,636,708  $12,567,296  $12,215,341  3.9 % 16.0 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS            
  Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020 Percentage Change
  Amount Percentage Amount Amount Amount Prior Qtr Prior Yr Qtr
Washington $7,877,919  55.6% $7,547,591  $7,058,404  $6,820,329  4.4% 15.5%
Oregon 3,030,109  21.4% 2,939,667  2,604,908  2,486,760  3.1% 21.8%
California 2,501,521  17.7% 2,417,387  2,237,949  2,254,681  3.5% 10.9%
Idaho 755,128  5.3% 732,063  666,035  653,571  3.2% 15.5%
Total deposits $14,164,677  100.0% $13,636,708  $12,567,296  $12,215,341  3.9% 16.0%


INCLUDED IN TOTAL DEPOSITS Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020
Public non-interest-bearing accounts $193,414  $187,702  $175,352  $142,415 
Public interest-bearing transaction & savings accounts 161,407  156,987  127,523  117,514 
Public interest-bearing certificates 40,851  41,444  59,127  54,219 
Total public deposits $395,672  $386,133  $362,002  $314,148 
                 


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, 2021 Amount Ratio Amount Ratio Amount Ratio
             
Banner Corporation-consolidated:            
Total capital to risk-weighted assets $1,635,458  14.55% $899,302  8.00% $1,124,128  10.00%
Tier 1 capital to risk-weighted assets 1,407,993  12.53% 674,477  6.00% 674,477  6.00%
Tier 1 leverage capital to average assets 1,407,993  8.79% 640,528  4.00% n/a n/a
Common equity tier 1 capital to risk-weighted assets 1,264,493  11.25% 505,857  4.50% n/a n/a
Banner Bank:            
Total capital to risk-weighted assets 1,524,897  13.57% 898,803  8.00% 1,123,504  10.00%
Tier 1 capital to risk-weighted assets 1,397,432  12.44% 674,102  6.00% 898,803  8.00%
Tier 1 leverage capital to average assets 1,397,432  8.73% 640,385  4.00% 800,482  5.00%
Common equity tier 1 capital to risk-weighted assets 1,397,432  12.44% 505,577  4.50% 730,278  6.50%
                   


ADDITIONAL FINANCIAL INFORMATION                 
(dollars in thousands)                 
(rates / ratios annualized)                 
ANALYSIS OF NET INTEREST SPREADQuarters Ended
 Sep 30, 2021 Jun 30, 2021 Sep 30, 2020
 Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3)
Interest-earning assets:                 
Held for sale loans$114,938  $996  3.44% $69,908  $544  3.12% $161,385  $1,535  3.78%
Mortgage loans7,245,962  83,803  4.59% 7,147,733  80,673  4.53% 7,339,181  88,011  4.77%
Commercial/agricultural loans1,534,978  15,776  4.08% 1,480,954  15,818  4.28% 1,721,186  18,553  4.29%
SBA PPP loans566,515  15,421  10.80% 1,144,195  17,796  6.24% 1,141,105  7,843  2.73%
Consumer and other loans120,112  1,774  5.86% 122,951  1,828  5.96% 140,493  2,195  6.22%
Total loans(1)(3)9,582,505  117,770  4.88% 9,965,741  116,659  4.70% 10,503,350  118,137  4.47%
Mortgage-backed securities2,560,027  11,820  1.83% 2,440,913  11,563  1.90% 1,250,759  7,333  2.33%
Other securities1,491,035  7,873  2.09% 1,250,417  7,088  2.27% 884,916  6,036  2.71%
Equity securities    %     % 379,483  186  0.19%
Interest-bearing deposits with banks1,486,839  586  0.16% 1,139,749  376  0.13% 171,894  123  0.28%
FHLB stock13,957  135  3.84% 14,001  161  4.61% 16,363  163  3.96%
Total investment securities (3)5,551,858  20,414  1.46% 4,845,080  19,188  1.59% 2,703,415  13,841  2.04%
Total interest-earning assets15,134,363  138,184  3.62% 14,810,821  135,847  3.68% 13,206,765  131,978  3.98%
Non-interest-earning assets1,301,383      1,227,167      1,259,816     
Total assets$16,435,746      $16,037,988      $14,466,581     
Deposits:                 
Interest-bearing checking accounts$1,771,869  282  0.06% $1,754,363  302  0.07% $1,413,085  321  0.09%
Savings accounts2,721,028  458  0.07% 2,622,716  454  0.07% 2,251,294  813  0.14%
Money market accounts2,322,453  668  0.11% 2,288,638  668  0.12% 2,096,037  1,224  0.23%
Certificates of deposit863,971  1,341  0.62% 889,020  1,604  0.72% 966,028  2,821  1.16%
Total interest-bearing deposits7,679,321  2,749  0.14% 7,554,737  3,028  0.16% 6,726,444  5,179  0.31%
Non-interest-bearing deposits6,275,634    % 6,057,884    % 5,340,688    %
Total deposits13,954,955  2,749  0.08% 13,612,621  3,028  0.09% 12,067,132  5,179  0.17%
Other interest-bearing liabilities:                 
FHLB advances98,370  655  2.64% 100,000  655  2.63% 150,000  988  2.62%
Other borrowings252,720  125  0.20% 240,229  124  0.21% 177,628  128  0.29%
Junior subordinated debentures and subordinated notes247,944  2,193  3.51% 247,944  2,204  3.57% 247,944  2,260  3.63%
Total borrowings599,034  2,973  1.97% 588,173  2,983  2.03% 575,572  3,376  2.33%
Total funding liabilities14,553,989  5,722  0.16% 14,200,794  6,011  0.17% 12,642,704  8,555  0.27%
Other non-interest-bearing liabilities(2)202,918      199,619      193,256     
Total liabilities14,756,907      14,400,413      12,835,960     
Shareholders’ equity1,678,839      1,637,575      1,630,621     
Total liabilities and shareholders’ equity$16,435,746      $16,037,988      $14,466,581     
Net interest income/rate spread (tax equivalent)  $132,462  3.46%   $129,836  3.51%   $123,423  3.71%
Net interest margin (tax equivalent)    3.47%     3.52%     3.72%
Reconciliation to reported net interest income:                 
Adjustments for taxable equivalent basis  (2,316)     (2,282)     (2,397)  
Net interest income and margin, as reported  $130,146  3.41%   $127,554  3.45%   $121,026  3.65%
Additional Key Financial Ratios:                 
Return on average assets    1.20%     1.36%     1.01%
Return on average equity    11.79%     13.32%     8.92%
Average equity/average assets    10.21%     10.21%     11.27%
Average interest-earning assets/average interest-bearing liabilities    182.82%     181.89%     180.86%
Average interest-earning assets/average funding liabilities    103.99%     104.30%     104.46%
Non-interest income/average assets    0.61%     0.56%     0.78%
Non-interest expense/average assets    2.47%     2.32%     2.48%
Efficiency ratio(4)    65.70%     61.79%     60.32%
Adjusted efficiency ratio(5)    59.65%     58.50%     58.02%


(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, $1.3 million, and $1.4 million for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million, $1.0 million, and $976,000 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.
(4) Non-interest expense divided by the total of net interest income 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
 Sep 30, 2021 Sep 30, 2020
 Average Balance Interest and Dividends Yield/Cost(3) Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:           
Held for sale loans$101,380  $2,465  3.25% $155,571  $4,506  3.87%
Mortgage loans7,179,859  245,056  4.56% 7,321,206  268,244  4.89%
Commercial/agricultural loans1,511,723  47,513  4.20% 1,811,854  61,424  4.53%
SBA PPP loans958,848  44,009  6.14% 638,380  13,131  2.75%
Consumer and other loans123,483  5,549  6.01% 151,968  7,151  6.29%
Total loans(1)(3)9,875,293  344,592  4.67% 10,078,979  354,456  4.70%
Mortgage-backed securities2,320,474  32,855  1.89% 1,297,020  24,652  2.54%
Other securities1,265,056  21,648  2.29% 710,967  15,205  2.86%
Equity securities574    % 165,395  309  0.25%
Interest-bearing deposits with banks1,221,241  1,224  0.13% 159,065  688  0.58%
FHLB stock14,629  457  4.18% 19,822  785  5.29%
Total investment securities(3)4,821,974  56,184  1.56% 2,352,269  41,639  2.36%
Total interest-earning assets14,697,267  400,776  3.65% 12,431,248  396,095  4.26%
Non-interest-earning assets1,255,512      1,232,997     
Total assets$15,952,779      $13,664,245     
Deposits:           
Interest-bearing checking accounts$1,714,920  899  0.07% $1,352,369  1,164  0.11%
Savings accounts2,611,046  1,433  0.07% 2,133,780  3,566  0.22%
Money market accounts2,284,904  2,111  0.12% 1,940,096  5,228  0.36%
Certificates of deposit888,502  4,943  0.74% 1,069,145  10,665  1.33%
Total interest-bearing deposits7,499,372  9,386  0.17% 6,495,390  20,623  0.42%
Non-interest-bearing deposits6,001,354    % 4,738,559    %
Total deposits13,500,726  9,386  0.09% 11,233,949  20,623  0.25%
Other interest-bearing liabilities:           
FHLB advances114,103  2,244  2.63% 236,949  4,036  2.28%
Other borrowings232,142  358  0.21% 195,977  482  0.33%
Junior subordinated debentures and subordinated notes247,944  6,605  3.56% 181,886  4,988  3.66%
Total borrowings594,189  9,207  2.07% 614,812  9,506  2.07%
Total funding liabilities14,094,915  18,593  0.18% 11,848,761  30,129  0.34%
Other non-interest-bearing liabilities(2)203,349      197,912     
Total liabilities14,298,264      12,046,673     
Shareholders’ equity1,654,515      1,617,572     
Total liabilities and shareholders’ equity$15,952,779      $13,664,245     
Net interest income/rate spread (tax equivalent)  $382,183  3.47%   $365,966  3.92%
Net interest margin (tax equivalent)    3.48%     3.93%
Reconciliation to reported net interest income:           
Adjustments for taxable equivalent basis  (6,822)     (6,102)  
Net interest income and margin, as reported  $375,361  3.41%   $359,864  3.87%
Additional Key Financial Ratios:           
Return on average assets    1.27%     0.75%
Return on average equity    12.21%     6.36%
Average equity/average assets    10.37%     11.84%
Average interest-earning assets/average interest-bearing liabilities  ` 181.59%     174.84%
Average interest-earning assets/average funding liabilities    104.27%     104.92%
Non-interest income/average assets    0.60%     0.73%
Non-interest expense/average assets    2.42%     2.68%
Efficiency ratio(4)    64.45%     63.00%
Adjusted efficiency ratio(5)    60.39%     59.59%


(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 $3.8 million and $3.6 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.0 million and $2.5 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(4) Non-interest expense divided by the total of net interest income and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.
   


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
           
* Non-GAAP Financial Measures          
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
           
ADJUSTED REVENUE Quarters Ended Nine Months Ended
  Sep 30, 2021 Jun 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net interest income $130,146   $127,554   $121,026   $375,361   $359,864  
Total non-interest income 25,334   22,336   28,222   71,942   75,107  
Total revenue (GAAP) 155,480   149,890   149,248   447,303   434,971  
Exclude net gain on sale of securities (56)  (77)  (644)  (618)  (815) 
Exclude net change in valuation of financial instruments carried at fair value (1,778)  (58)  (37)  (1,895)  2,360  
Adjusted revenue (non-GAAP) $153,646   $149,755   $148,567   $444,790   $436,516  


ADJUSTED EARNINGS Quarters Ended Nine Months Ended
  Sep 30, 2021 Jun 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net income (GAAP) $49,884   $54,382   $36,548   $151,121   $76,971  
Exclude net gain on sale of securities (56)  (77)  (644)  (618)  (815) 
Exclude net change in valuation of financial instruments carried at fair value (1,778)  (58)  (37)  (1,895)  2,360  
Exclude merger and acquisition-related expenses 10   79   5   660   1,483  
Exclude COVID-19 expenses 44   117   778   309   3,169  
Exclude Banner Forward expenses 7,592   1,905      10,447     
Exclude related net tax expense (benefit) (1,395)  (472)  (24)  (2,137)  (1,476) 
Total adjusted earnings (non-GAAP) $54,301   $55,876   $36,626   $157,887   $81,692  
           
Diluted earnings per share (GAAP) $1.44   $1.56   $1.03   $4.32   $2.17  
Diluted adjusted earnings per share (non-GAAP) $1.57   $1.60   $1.04   $4.51   $2.30  


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
ADJUSTED EFFICIENCY RATIO Quarters Ended Nine Months Ended
  Sep 30, 2021 Jun 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Non-interest expense (GAAP) $102,145   $92,624   $90,028   $288,296   $274,033  
Exclude merger and acquisition-related expenses (10)  (79)  (5)  (660)  (1,483) 
Exclude COVID-19 expenses (44)  (117)  (778)  (309)  (3,169) 
Exclude Banner Forward expenses (7,592)  (1,905)     (10,447)    
Exclude CDI amortization (1,575)  (1,711)  (1,864)  (4,997)  (5,867) 
Exclude state/municipal tax expense (1,219)  (1,083)  (1,196)  (3,367)  (3,284) 
Exclude REO operations (53)  (118)  11   71   (93) 
Adjusted non-interest expense (non-GAAP) $91,652   $87,611   $86,196   $268,587   $260,137  
           
Net interest income (GAAP) $130,146   $127,554   $121,026   $375,361   $359,864  
Non-interest income (GAAP) 25,334   22,336   28,222   71,942   75,107  
Total revenue 155,480   149,890   149,248   447,303   434,971  
Exclude net gain on sale of securities (56)  (77)  (644)  (618)  (815) 
Exclude net change in valuation of financial instruments carried at fair value (1,778)  (58)  (37)  (1,895)  2,360  
Adjusted revenue (non-GAAP) $153,646   $149,755   $148,567   $444,790   $436,516  
           
Efficiency ratio (GAAP) 65.70 % 61.79 % 60.32 % 64.45 % 63.00 %
Adjusted efficiency ratio (non-GAAP) 59.65 % 58.50 % 58.02 % 60.39 % 59.59 %


TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS Sep 30, 2021 Jun 30, 2021 Dec 31, 2020 Sep 30, 2020
Shareholders’ equity (GAAP) $1,667,119   $1,669,211   $1,666,264   $1,646,529  
Exclude goodwill and other intangible assets, net 389,550   391,125   394,547   396,412  
Tangible common shareholders’ equity (non-GAAP) $1,277,569   $1,278,086   $1,271,717   $1,250,117  
         
Total assets (GAAP) $16,637,879   $16,181,857   $15,031,623   $14,642,075  
Exclude goodwill and other intangible assets, net 389,550   391,125   394,547   396,412  
Total tangible assets (non-GAAP) $16,248,329   $15,790,732   $14,637,076   $14,245,663  
Common shareholders’ equity to total assets (GAAP) 10.02 % 10.32 % 11.09 % 11.25 %
Tangible common shareholders’ equity to tangible assets (non-GAAP) 7.86 % 8.09 % 8.69 % 8.78 %
         
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE        
Tangible common shareholders’ equity (non-GAAP) $1,277,569   $1,278,086   $1,271,717   $1,250,117  
Common shares outstanding at end of period 34,251,991   34,550,888   35,159,200   35,158,568  
Common shareholders’ equity (book value) per share (GAAP) $48.67   $48.31   $47.39   $46.83  
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $37.30   $36.99   $36.17   $35.56  
                     


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


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