EX-99.1 2 ex9916302020.htm
Exhibit 99.1
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
PETER J. CONNER, CFO
 
(509) 527-3636
 
NEWS RELEASE
       
       
       
Banner Corporation Reports Net Income of $23.5 Million, or $0.67 Per Diluted Share, in Second Quarter 2020
Declares Quarterly Cash Dividend of $0.41 Per Share
Provides Update to Pandemic Relief and Community Support Actions

Walla Walla, WA - July 22, 2020 - Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $23.5 million, or $0.67 per diluted share, for the second quarter 2020, compared to $16.9 million, or $0.47 per diluted share, in the preceding quarter and $39.7 million, or $1.14 per diluted share, in the second quarter of 2019.  Banner's second quarter earnings reflect the continuing impact of the COVID-19 pandemic in all the western states that Banner operates.  Second quarter of 2020 results also include $336,000 of acquisition-related expenses, compared to $1.1 million of acquisition-related expenses in the preceding quarter and $301,000 in the second quarter of 2019.  In the first six months of 2020, net income was $40.4 million, or $1.14 per diluted share, compared to $73.0 million, or $2.09 per diluted share, in the first six months a year ago.  The results for the first six months of 2020 include $1.5 million of acquisition-related expenses, compared to $2.4 million of acquisition-related expenses in the first six months of 2019.
Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share.  The dividend will be payable August 13, 2020, to common shareholders of record on August 4, 2020.
“With strong loan and deposit growth, Banner’s core operating performance generated solid revenue growth with increases in both net interest income and non-interest income compared to both the preceding quarter and the same quarter last year.  However; second quarter earnings were impacted by a number of items, including the anticipated impact of the COVID-19 pandemic on the economy, and subsequently, the increase in our allowance for credit losses,” said Mark Grescovich, President and CEO.  “To provide support for our clients, we have made available several assistance programs. Banner has provided SBA paycheck protection funds totaling nearly $1.12 billion for 8,655 businesses and provided deferred payments or waived interest on 3,314 loans totaling $1.1 billion as of June 30, 2020.  We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events.  I am very proud of our more than 2,100 colleagues that are working extremely hard to assist our clients and communities during these difficult times."
“We have proactively downgraded certain modified loans and other loans we consider at risk due to the COVID-19 induced economic slowdown. As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to  $156.4 million with the addition of $29.5 million in credit loss provisions during the quarter ended June 30, 2020,” Grescovich added.  "This provision compares to a $21.7 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the second quarter a year ago.  The allowance for credit losses - loans was 1.52% of total loans and 418% of non-performing loans at the end of the second quarter of 2020."

At June 30, 2020, Banner Corporation had $14.41 billion in assets, $10.13 billion in net loans and $12.02 billion in deposits.  Banner operates 176 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
COVID-19 Pandemic Update
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SBA Paycheck Protection Program.  The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations.  As of June 30, 2020, Banner had funded 8,655 applications totaling $1.12 billion of loans in its service area through the PPP program.  The deadline for PPP loan applications to the SBA has been extended to August 8, 2020.  Banner is continuing to accept new PPP applications based on this extended deadline and is assisting small businesses with other borrowing options as they become available, including the Main Street Lending Program and other government sponsored lending programs, as appropriate.
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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 could 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.  Banner had deferred payment or waived interest on 3,314 loans totaling $1.1 billion through June 30, 2020.  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 June 30, 2020 pursuant to applicable accounting and regulatory guidance.  As of June 30, 2020, the deferral period had ended for approximately 62% of these loans.
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Allowance for Credit Losses - Loans.  Banner recorded a provision for credit losses of $29.5 million for the second quarter of 2020, compared to a $21.7 million provision in the preceding quarter and a $2.0 million provision in the second quarter a year ago.  The provisions for the current and



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preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of June 30, 2020 and March 31, 2020, respectively.
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Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of our clients and our 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 $2.2 million of related costs during the second quarter of 2020, compared to $239,000 of related costs in the first quarter of 2020.
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Capital Management.  At June 30, 2020, the tangible common shareholders' equity to tangible assets* ratio was 8.76% 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.  During the preceding quarter, prior to the COVID-19 pandemic outbreak, Banner repurchased 624,780 shares of its common stock.  To preserve capital, Banner has discontinued any additional repurchase of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Second Quarter 2020 Highlights
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Revenues increased to $147.3 million, compared to $138.4 million in the preceding quarter, and increased 6% when compared to $139.4 million in the second quarter a year ago.
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Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago.
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Net interest margin as reported was 3.84%, compared to 4.19% in the preceding quarter and 4.38% in the second quarter a year ago.
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Net interest margin on a tax equivalent basis was 3.90%, compared to 4.25% in the preceding quarter and 4.44% in the second quarter a year ago.
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Mortgage banking revenues increased 39% to $14.1 million, compared to $10.2 million in the preceding quarter, and increased 138% compared to $5.9 million in the second quarter a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates.
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Return on average assets was 0.68%, compared to 0.54% in the preceding quarter and 1.36% in the second quarter a year ago.
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Net loans receivable increased to $10.13 billion at June 30, 2020, compared to $9.16 billion at March 31, 2020, and increased 17% when compared to $8.65 billion at June 30, 2019.
•
Non-performing assets decreased to $39.9 million, or 0.28% of total assets, at June 30, 2020, compared to $46.1 million, or 0.36% of total assets in the preceding quarter, and increased from $21.0 million, or 0.18% of total assets, at June 30, 2019.
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Provision for credit losses - loans was $29.5 million, and the allowance for credit losses - loans was $156.4 million, or 1.52% of total loans receivable, as of June 30, 2020, compared to $130.5 million, or 1.41% of total loans receivable as of March 31, 2020 and $98.3 million or 1.12% of total loans receivable as of June 30, 2019.
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A $905,000 recapture of provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $10.6 million as of June 30, 2020, compared to $11.5 million as of March 31, 2020.
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Core deposits increased 18% to $10.97 billion at June 30, 2020, compared to $9.28 billion at March 31, 2020, and increased 34% compared to $8.22 billion a year ago.  Core deposits represented 91% of total deposits at June 30, 2020.
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Common shareholders’ equity per share increased 1% to $46.22 at June 30, 2020, compared to $45.63 at the preceding quarter end, and increased 5% from $43.99 a year ago.
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Tangible common shareholders' equity per share* increased 2% to $34.89 at June 30, 2020, compared to $34.23 at the preceding quarter end, and increased 5% from $33.36 a year ago.

*Tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.
Significant Recent Initiatives and Events
On June 30, 2020, Banner issued and sold in an underwritten offering the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million.  Banner intends to use the net proceeds of the offering for general corporate purposes, which may include providing capital to support its growth organically or through strategic acquisitions, repayment or redemption of outstanding indebtedness, the payment of dividends, financing investments and capital expenditures, repurchasing shares of its common stock, and for investments in the Banks as regulatory capital.

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

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the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.
The AltaPacific merger was accounted for using the acquisition method of accounting.  Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date.  The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill.  The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date.  The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date.  The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner.  During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner's core systems and closure of overlapping branches.
Adoption of New Accounting Standard
In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13).  GAAP prior to ASU 2016-13 required an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred.  The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  ASU 2016-13 became effective for Banner on January 1, 2020.  The adoption of ASU No. 2016-13 resulted in a $7.8 million increase to its allowance for credit losses - loans and a $7.0 million increase to its allowance for credit losses - unfunded loan commitments.  The combined increases were recorded net of tax as an $11.2 million reduction to retained earnings as of the adoption date.
Income Statement Review
Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago.
Banner's net interest margin on a tax equivalent basis was 3.90% for the second quarter of 2020, a 35 basis-point decrease compared to 4.25% in the preceding quarter and a 54 basis-point decrease compared to 4.44% in the second quarter a year ago.  “As expected, the 150 basis-point decrease in the fed funds target rate that occurred in March 2020, the full effect of the lower interest rate environment combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposit liquidity impacted our net interest margin during the quarter,” added Grescovich.  Acquisition accounting adjustments added seven basis points to the net interest margin in the current quarter compared to ten basis points in the preceding quarter and seven basis points in the second quarter a year ago.  The total purchase discount for acquired loans was $20.2 million at June 30, 2020, compared to $22.2 million at March 31, 2020, and $22.6 million at June 30, 2019.  In the first six months of the year, Banner’s net interest margin on a tax equivalent basis was 4.07% compared to 4.43% in the first six months of 2019.
Average interest-earning asset yields decreased 50 basis points to 4.19% in the second quarter compared to 4.69% for the preceding quarter and decreased 78 basis points compared to 4.97% in the second quarter a year ago.  Average loan yields decreased 51 basis points to 4.57% compared to 5.08% in the preceding quarter and decreased 82 basis points compared to 5.39% in the second quarter a year ago.  Loan discount accretion added eight basis points to loan yields in the second quarter of 2020, compared to 12 basis points in the preceding quarter and nine basis points in the second quarter a year ago.  Deposit costs were 0.23% in the second quarter of 2020, a 12 basis-point decrease compared to the preceding quarter and a 16 basis-point decrease compared to the second quarter a year ago.  The decrease in deposit costs during the current quarter compared to the preceding quarter was the result of recent decreases in market interest rates; however, changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates.  The total cost of funds was 0.31% during the second quarter of 2020, a 15 basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the second quarter a year ago.
Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology.  The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of June 30, 2020 and March 31, 2020, respectively.
Total non-interest income was $27.8 million in the second quarter of 2020, compared to $19.2 million in the preceding quarter and $22.7 million in the second quarter a year ago.  Deposit fees and other service charges were $7.5 million in the second quarter of 2020, compared to $9.8 million in the preceding quarter and $14.0 million in the second quarter a year ago.  The decrease in deposit fees and other service charges from the second quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, as well as pandemic related fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $14.1 million in the second quarter, compared to $10.2 million in the preceding quarter and $5.9 million in the second quarter of 2019.  The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans.  The increases compared to the second quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans primarily due to increased refinance activity.  Home purchase activity accounted for 42% of one- to four-family mortgage loan originations in the second quarter of 2020, compared to 54% in the prior quarter and 77% in the second quarter of 2019.  In the first six months of 2020, total non-interest income increased 15% to $47.0 million, compared to $40.8 million in the first six months of 2019.
Banner’s second quarter 2020 results included a $2.2 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 $93,000 net gain on the sale of securities.  In the preceding quarter, results included a $4.6 million net loss for fair value adjustments and a $78,000 net gain on the sale of securities.  In the second quarter a year ago, results included an $114,000 net loss for fair value adjustments and a $28,000 net loss on the sale of securities.
Banner's total revenue increased 6% to $147.3 million for the second quarter of 2020, compared to $138.4 million in the preceding quarter, and increased 6% compared to $139.4 million in the second quarter a year ago.  Year-to-date, total revenues increased 4% to $285.7 million compared to $273.6 million

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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 $145.0 million in the second quarter of 2020, compared to $142.9 million in the preceding quarter and $139.5 million in the second quarter of 2019.  In the first six months of the year, adjusted revenue* was $287.9 million, compared to $273.7 million in the first six months of 2019.
Total non-interest expense was $89.6 million in the second quarter of 2020, compared to $95.2 million in the preceding quarter and $86.7 million in the second quarter of 2019.  The decrease in non-interest expense during the second quarter of 2020 reflects an increase in capitalized loan origination costs, primarily related to the origination of PPP loans during the current quarter.  A reduction in acquisition-related expenses also contributed to the decrease compared to the prior quarter as acquisition-related expenses were $336,000 for the second quarter of 2020, compared to $1.1 million for the preceding quarter and $301,000 in the second quarter a year ago.  The current quarter includes a $905,000 recapture of provision for credit losses - unfunded loan commitments compared to a $1.7 million provision for the prior quarter and no provision for the year ago quarter.  The previously mentioned increase in COVID-19 expenses during the current quarter partially offset these decreases.  Year-to-date, total non-interest expense was $184.8 million, compared to $176.7 million in the same period a year earlier.  Banner’s efficiency ratio was 60.85% for the current quarter, compared to 68.76% in the preceding quarter and 62.22% in the year ago quarter.  Banner’s adjusted efficiency ratio* was 57.95% for the current quarter, compared to 63.47% in the preceding quarter and 59.56% in the year ago quarter.
For the second quarter of 2020, Banner had $4.6 million in state and federal income tax expense for an effective tax rate of 16.3%, reflecting the benefits from tax exempt income.  Banner’s statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review
Total assets increased 13% to $14.41 billion at June 30, 2020, compared to $12.78 billion at March 31, 2020, and increased 22% when compared to $11.85 billion at June 30, 2019.  The total of securities and interest-bearing deposits held at other banks was $2.30 billion at June 30, 2020, compared to $2.15 billion at March 31, 2020 and $1.85 billion at June 30, 2019.  The average effective duration of Banner's securities portfolio was approximately 4.0 years at June 30, 2020, compared to 2.6 years at June 30, 2019.
Net loans receivable increased 11% to $10.13 billion at June 30, 2020, compared to $9.16 billion at March 31, 2020, and increased 17% when compared to $8.65 billion at June 30, 2019.  The increase in net loans compared to the prior quarter primarily reflects the origination of SBA PPP loans during the current quarter, which totaled $1.12 billion outstanding as of June 30, 2020.  The year-over-year increase in net loans included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019.  Commercial real estate and multifamily real estate loans increased to $4.11 billion at June 30, 2020, compared to $4.02 billion at March 31, 2020, and increased 13% compared to $3.62 billion a year ago.  Commercial business loans increased 46% to $3.15 billion at June 30, 2020, compared to $2.17 billion at March 31, 2020, and increased 56% compared to $2.02 billion a year ago.  Agricultural business loans decreased to $328.1 million at June 30, 2020, compared to $330.3 million three months earlier and $345.8 million a year ago.  Total construction, land and land development loans were $1.24 billion at June 30, 2020, a small increase from $1.22 billion at March 31, 2020, and a 9% increase compared to $1.14 billion a year earlier.  Consumer loans decreased to $642.4 million at June 30, 2020, compared to $661.8 million at March 31, 2020, and $698.3 million a year ago.  One- to four-family loans decreased to $817.8 million at June 30, 2020, compared to $881.4 million at March 31, 2020, and $918.2 million a year ago.
Loans held for sale were $258.7 million at June 30, 2020, compared to $182.4 million at March 31, 2020, and $170.7 million at June 30, 2019.  The volume of one- to four- family residential mortgage loans sold was $292.4 million in the current quarter, compared to $204.0 million in the preceding quarter and $139.0 million in the second quarter a year ago.  During the second quarter of 2020, Banner sold $3.1 million in multifamily loans compared to $119.7 million in the preceding quarter and none in the second quarter a year ago.  The current quarter reflects a temporary disruption in the secondary market for multifamily loans as a results of the COVID-19 pandemic.
Total deposits increased 15% to $12.02 billion at June 30, 2020, compared to $10.45 billion at March 31, 2020, and increased 29% when compared to $9.29 billion a year ago.  The increase in total deposits from the preceding quarter was due primarily to SBA PPP loan funds deposited into customer accounts and an increase in customer deposits accounts due changes in spending habits during the COVID-19 pandemic.  The year-over-year increase in deposits included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019.  Non-interest-bearing account balances increased 29% to $5.28 billion at June 30, 2020, compared to $4.11 billion at March 31, 2020, and increased 44% compared to $3.67 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 18% from the prior quarter and increased 34% compared to a year ago and represented 91% of total deposits at June 30, 2020.  Certificates of deposit decreased 11% to $1.04 billion at June 30, 2020, compared to $1.17 billion at March 31, 2020, and decreased slightly compared to $1.07 billion a year earlier.  The decrease in certificates of deposit during the second quarter of 2020 primarily reflects the decrease in brokered deposits to $119.4 million at June 30, 2020, compared to $251.0 million at March 31, 2020 and $138.4 million a year ago.  FHLB borrowings totaled $150.0 million at June 30, 2020, compared to $247.0 million at March 31, 2020, and $606.0 million a year earlier.
At June 30, 2020, total common shareholders' equity was $1.63 billion, or 11.28% of assets, compared to $1.60 billion or 12.53% of assets at March 31, 2020, and $1.52 billion or 12.84% of assets a year ago.  At June 30, 2020, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.23 billion, or 8.76% of tangible assets*, compared to $1.20 billion, or 9.70% of tangible assets, at March 31, 2020, and $1.15 billion, or 10.05% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $34.89 at June 30, 2020, compared to $33.36 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 June 30, 2020, Banner's common equity Tier 1 capital ratio was 10.66%, its Tier 1 leverage capital to average assets ratio was 9.83%, and its total capital to risk-weighted assets ratio was 14.14%.

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Credit Quality
The allowance for credit losses - loans was $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, compared to $130.5 million at March 31, 2020, or 1.41% of total loans receivable outstanding and 299% of non-performing loans, and $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% 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 $10.6 million at June 30, 2020, compared to $11.5 million at March 31, 2020 and $2.6 million at June 30, 2019.  Net loan charge-offs totaled $3.7 million in the second quarter of 2020, compared to net loan recoveries of $404,000 in the preceding quarter and $1.1 million of net charge-offs in the second quarter a year ago.  Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses.  Non-performing loans were $37.4 million at June 30, 2020, compared to $43.7 million at March 31, 2020, and $18.4 million a year ago.  Real estate owned and other repossessed assets were $2.4 million at June 30, 2020, compared to $2.4 million at March 31, 2020, and $2.6 million a year ago.
In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses.  Credit discounts 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 June 30, 2020, the total purchase discount for acquired loans was $20.2 million.
Banner's total non-performing assets were $39.9 million, or 0.28% of total assets, at June 30, 2020, compared to $46.1 million, or 0.36% of total assets, at March 31, 2020, and $21.0 million, or 0.18% of total assets, a year ago.
Conference Call
Banner will host a conference call on Thursday, July 23, 2020, at 8:00 a.m. PDT, to discuss its second 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 10145372, or at www.bannerbank.com.
About the Company
Banner Corporation is a $14.41 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.
BANR - Second Quarter 2020 Results
July 22, 2020
Page 6

RESULTS OF OPERATIONS
  
Quarters Ended
  
Six Months Ended
(in thousands except shares and per share data)
  
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
  
Jun 30, 2020
  
Jun 30, 2019
                     
INTEREST INCOME:
                    
     Loans receivable
  
$
115,173
    
$
118,926
    
$
117,007
    
$
234,099
    
$
232,462
  
     Mortgage-backed securities
  
7,983
    
9,137
    
9,794
    
17,120
    
20,301
  
     Securities and cash equivalents
  
5,468
    
3,602
    
4,037
    
9,070
    
8,071
  
   
128,624
    
131,665
    
130,838
    
260,289
    
260,834
  
INTEREST EXPENSE:
                    
     Deposits
  
6,694
    
8,750
    
9,023
    
15,444
    
17,666
  
     Federal Home Loan Bank advances
  
984
    
2,064
    
3,370
    
3,048
    
6,846
  
     Other borrowings
  
238
    
116
    
67
    
354
    
127
  
Junior subordinated debentures and subordinated notes
  
1,251
    
1,477
    
1,683
    
2,728
    
3,396
  
   
9,167
    
12,407
    
14,143
    
21,574
    
28,035
  
      Net interest income before provision for credit losses
  
119,457
    
119,258
    
116,695
    
238,715
    
232,799
  
PROVISION FOR CREDIT LOSSES
  
29,528
    
21,748
    
2,000
    
51,276
    
4,000
  
      Net interest income
  
89,929
    
97,510
    
114,695
    
187,439
    
228,799
  
NON-INTEREST INCOME:
                    
     Deposit fees and other service charges
  
7,546
    
9,803
    
14,046
    
17,349
    
26,664
  
     Mortgage banking operations
  
14,138
    
10,191
    
5,936
    
24,329
    
9,351
  
     Bank-owned life insurance
  
2,317
    
1,050
    
1,123
    
3,367
    
2,399
  
     Miscellaneous
  
1,550
    
2,639
    
1,713
    
4,189
    
2,517
  
   
25,551
    
23,683
    
22,818
    
49,234
    
40,931
  
     Net gain (loss) on sale of securities
  
93
    
78
    
(28
)
  
171
    
(27
)
     Net change in valuation of financial instruments carried at fair value
  
2,199
    
(4,596
)
  
(114
)
  
(2,397
)
  
(103
)
     Total non-interest income
  
27,843
    
19,165
    
22,676
    
47,008
    
40,801
  
NON-INTEREST EXPENSE:
                    
     Salary and employee benefits
  
63,415
    
59,908
    
55,629
    
123,323
    
110,269
  
     Less capitalized loan origination costs
  
(11,110
)
  
(5,806
)
  
(7,399
)
  
(16,916
)
  
(12,248
)
     Occupancy and equipment
  
12,985
    
13,107
    
12,681
    
26,092
    
26,447
  
     Information / computer data services
  
6,084
    
5,810
    
5,273
    
11,894
    
10,599
  
     Payment and card processing services
  
3,851
    
4,240
    
4,041
    
8,091
    
8,025
  
     Professional and legal expenses
  
2,163
    
1,919
    
2,336
    
4,082
    
4,770
  
     Advertising and marketing
  
652
    
1,827
    
2,065
    
2,479
    
3,594
  
     Deposit insurance expense
  
1,705
    
1,635
    
1,418
    
3,340
    
2,836
  
     State/municipal business and use taxes
  
1,104
    
984
    
1,007
    
2,088
    
1,952
  
     Real estate operations
  
4
    
100
    
260
    
104
    
137
  
     Amortization of core deposit intangibles
  
2,002
    
2,001
    
2,053
    
4,003
    
4,105
  
     (Recapture) / provision for credit losses - unfunded loan commitments
  
(905
)
  
1,722
    
—
    
817
    
—
  
     Miscellaneous
  
5,199
    
6,357
    
7,051
    
11,556
    
13,795
  
   
87,149
    
93,804
    
86,415
    
180,953
    
174,281
  
     COVID-19 expenses
  
2,152
    
239
    
—
    
2,391
    
—
  
     Acquisition-related expenses
  
336
    
1,142
    
301
    
1,478
    
2,449
  
     Total non-interest expense
  
89,637
    
95,185
    
86,716
    
184,822
    
176,730
  
     Income before provision for income taxes
  
28,135
    
21,490
    
50,655
    
49,625
    
92,870
  
PROVISION FOR INCOME TAXES
  
4,594
    
4,608
    
10,955
    
9,202
    
19,824
  
NET INCOME
  
$
23,541
    
$
16,882
    
$
39,700
    
$
40,423
    
$
73,046
  
Earnings per share available to common shareholders:
                    
     Basic
  
$
0.67
    
$
0.48
    
$
1.14
    
$
1.14
    
$
2.09
  
     Diluted
  
$
0.67
    
$
0.47
    
$
1.14
    
$
1.14
    
$
2.09
  
Cumulative dividends declared per common share
  
$
—
    
$
0.41
    
$
0.41
    
$
0.41
    
$
0.82
  
Weighted average common shares outstanding:
                    
     Basic
  
35,189,260
    
35,463,541
    
34,831,047
    
35,326,401
    
34,940,106
  
     Diluted
  
35,283,690
    
35,640,463
    
34,882,359
    
35,545,086
    
35,028,881
  
Increase (decrease) in common shares outstanding
  
55,440
    
(649,117
)
  
(579,103
)
  
(593,677
)
  
(609,129
)
BANR - Second Quarter 2020 Results
July 22, 2020
Page 7

FINANCIAL  CONDITION
                  
Percentage Change
(in thousands except shares and per share data)
  
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
  
Prior
Qtr
  
Prior
Yr Qtr
                         
ASSETS
                        
Cash and due from banks
  
$
291,036
    
$
211,013
    
$
234,359
    
$
187,043
    
37.9
%
  
55.6
%
Interest-bearing deposits
  
128,938
    
83,988
    
73,376
    
59,753
    
53.5
%
  
115.8
%
Total cash and cash equivalents
  
419,974
    
295,001
    
307,735
    
246,796
    
42.4
%
  
70.2
%
Securities - trading
  
23,239
    
21,040
    
25,636
    
25,741
    
10.5
%
  
(9.7
)%
Securities - available for sale
  
1,706,781
    
1,608,224
    
1,551,557
    
1,561,009
    
6.1
%
  
9.3
%
Securities - held to maturity
  
441,075
    
437,846
    
236,094
    
203,222
    
0.7
%
  
117.0
%
Total securities
  
2,171,095
    
2,067,110
    
1,813,287
    
1,789,972
    
5.0
%
  
21.3
%
Equity securities

 
340,052
    
—
    
—
    
—
    
nm
  
nm
Federal Home Loan Bank stock
  
16,363
    
20,247
    
28,342
    
34,583
    
(19.2
)%
  
(52.7
)%
Loans held for sale
  
258,700
    
182,428
    
210,447
    
170,744
    
41.8
%
  
51.5
%
Loans receivable
  
10,283,999
    
9,285,744
    
9,305,357
    
8,746,550
    
10.8
%
  
17.6
%
Allowance for credit losses - loans
  
(156,352
)
  
(130,488
)
  
(100,559
)
  
(98,254
)
  
19.8
%
  
59.1
%
Net loans receivable
  
10,127,647
    
9,155,256
    
9,204,798
    
8,648,296
    
10.6
%
  
17.1
%
Accrued interest receivable
  
48,806
    
40,732
    
37,962
    
40,238
    
19.8
%
  
21.3
%
Real estate owned held for sale, net
  
2,400
    
2,402
    
814
    
2,513
    
(0.1
)%
  
(4.5
)%
Property and equipment, net
  
173,360
    
175,235
    
178,008
    
171,233
    
(1.1
)%
  
1.2
%
Goodwill
  
373,121
    
373,121
    
373,121
    
339,154
    
—
%
  
10.0
%
Other intangibles, net
  
25,155
    
27,157
    
29,158
    
28,595
    
(7.4
)%
  
(12.0
)%
Bank-owned life insurance
  
190,468
    
193,140
    
192,088
    
178,922
    
(1.4
)%
  
6.5
%
Other assets
  
258,466
    
249,121
    
228,271
    
196,328
    
3.8
%
  
31.7
%
Total assets
  
$
14,405,607
    
$
12,780,950
    
$
12,604,031
    
$
11,847,374
    
12.7
%
  
21.6
%
LIABILITIES
                        
Deposits:
                        
Non-interest-bearing
  
$
5,281,559
    
$
4,107,262
    
$
3,945,000
    
$
3,671,995
    
28.6
%
  
43.8
%
Interest-bearing transaction and savings accounts
  
5,692,715
    
5,175,969
    
4,983,238
    
4,546,202
    
10.0
%
  
25.2
%
Interest-bearing certificates
  
1,042,006
    
1,166,306
    
1,120,403
    
1,070,770
    
(10.7
)%
  
(2.7
)%
Total deposits
  
12,016,280
    
10,449,537
    
10,048,641
    
9,288,967
    
15.0
%
  
29.4
%
Advances from Federal Home Loan Bank
  
150,000
    
247,000
    
450,000
    
606,000
    
(39.3
)%
  
(75.2
)%
Customer repurchase agreements and other borrowings
  
166,084
    
128,764
    
118,474
    
118,370
    
29.0
%
  
40.3
%
Subordinated notes, net
  
98,140
    
—
    
—
    
—
    
nm
  
nm
Junior subordinated debentures at fair value
  
109,613
    
99,795
    
119,304
    
113,621
    
9.8
%
  
(3.5
)%
Accrued expenses and other liabilities
  
194,964
    
208,753
    
227,889
    
159,131
    
(6.6
)%
  
22.5
%
Deferred compensation
  
45,423
    
45,401
    
45,689
    
40,230
    
—
%
  
12.9
%
Total liabilities
  
12,780,504
    
11,179,250
    
11,009,997
    
10,326,319
    
14.3
%
  
23.8
%
SHAREHOLDERS' EQUITY
                        
Common stock
  
1,345,096
    
1,343,699
    
1,373,940
    
1,306,888
    
0.1
%
  
2.9
%
Retained earnings
  
201,448
    
177,922
    
186,838
    
178,257
    
13.2
%
  
13.0
%
Other components of shareholders' equity
  
78,559
    
80,079
    
33,256
    
35,910
    
(1.9
)%
  
118.8
%
Total shareholders' equity
  
1,625,103
    
1,601,700
    
1,594,034
    
1,521,055
    
1.5
%
  
6.8
%
Total liabilities and shareholders' equity
  
$
14,405,607
    
$
12,780,950
    
$
12,604,031
    
$
11,847,374
    
12.7
%
  
21.6
%
Common Shares Issued:
                        
Shares outstanding at end of period
  
35,157,899
    
35,102,459
    
35,751,576
    
34,573,643
          
Common shareholders' equity per share (1)
  
$
46.22
    
$
45.63
    
$
44.59
    
$
43.99
          
Common shareholders' tangible equity per share (1) (2)
  
$
34.89
    
$
34.23
    
$
33.33
    
$
33.36
          
Common shareholders' tangible equity to tangible assets (2)
  
8.76
%
  
9.70
%
  
9.77
%
  
10.05
%
        
Consolidated Tier 1 leverage capital ratio
  
9.83
%
  
10.45
%
  
10.71
%
  
10.83
%
        

(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.
BANR - Second Quarter 2020 Results
July 22, 2020
Page 8

ADDITIONAL FINANCIAL INFORMATION
                        
(dollars in thousands)
                        
                   
Percentage Change
LOANS
  
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
  
Prior
Qtr
  
Prior
Yr Qtr
                         
Commercial real estate:
                        
     Owner-occupied
  
$
1,027,399
    
$
1,024,089
    
$
980,021
    
$
854,812
    
0.3
%
  
20.2
%
     Investment properties
  
2,017,789
    
2,007,537
    
2,024,988
    
1,832,054
    
0.5
%
  
10.1
%
     Small balance CRE
  
624,726
    
591,783
    
613,484
    
619,695
    
5.6
%
  
0.8
%
Multifamily real estate
  
437,201
    
400,206
    
388,388
    
316,274
    
9.2
%
  
38.2
%
Construction, land and land development:
                        
     Commercial construction
  
215,860
    
205,476
    
210,668
    
172,931
    
5.1
%
  
24.8
%
     Multifamily construction
  
256,335
    
250,410
    
233,610
    
189,160
    
2.4
%
  
35.5
%
     One- to four-family construction
  
528,966
    
534,956
    
544,308
    
502,897
    
(1.1
)%
  
5.2
%
     Land and land development
  
235,602
    
232,506
    
245,530
    
273,546
    
1.3
%
  
(13.9
)%
Commercial business:
                        
     Commercial business
  
2,372,216
    
1,357,817
    
1,364,650
    
1,253,137
    
74.7
%
  
89.3
%
     Small business scored
  
779,678
    
807,539
    
772,657
    
769,702
    
(3.5
)%
  
1.3
%
Agricultural business, including secured by farmland
  
328,077
    
330,257
    
337,271
    
345,817
    
(0.7
)%
  
(5.1
)%
One- to four-family residential
  
817,787
    
881,387
    
925,531
    
918,212
    
(7.2
)%
  
(10.9
)%
Consumer:
                        
     Consumer—home equity revolving lines of credit
  
515,603
    
521,618
    
519,336
    
542,968
    
(1.2
)%
  
(5.0
)%
     Consumer—other
  
126,760
    
140,163
    
144,915
    
155,345
    
(9.6
)%
  
(18.4
)%
         Total loans receivable
  
$
10,283,999
    
$
9,285,744
    
$
9,305,357
    
$
8,746,550
    
10.8
%
  
17.6
%
Restructured loans performing under their restructured terms
  
$
6,391
    
$
6,423
    
$
6,466
    
$
6,594
          
Loans 30 - 89 days past due and on accrual
  
$
20,807
    
$
39,974
    
$
20,178
    
$
17,923
          
Total delinquent loans (including loans on non-accrual), net
  
$
36,269
    
$
61,101
    
$
38,322
    
$
34,749
          
Total delinquent loans  /  Total loans receivable
  
0.35
%
  
0.66
%
  
0.41
%
  
0.40
%
        


LOANS BY GEOGRAPHIC LOCATION
                      
Percentage Change
   
Jun 30, 2020
  
Mar 31,
2020
  
Dec 31,
2019
  
Jun 30,
2019
  
Prior
Qtr
  
Prior
Yr Qtr
   
Amount
  
Percentage
  
Amount
  
Amount
  
Amount
        
                             
Washington
  
$
4,787,550
    
46.5%
  
$
4,350,273
    
$
4,364,764
    
$
4,293,854
    
10.1
%
  
11.5
%
California
  
2,359,703
    
22.9%
  
2,140,895
    
2,129,789
    
1,659,326
    
10.2
%
  
42.2
%
Oregon
  
1,899,933
    
18.5%
  
1,664,652
    
1,650,704
    
1,628,102
    
14.1
%
  
16.7
%
Idaho
  
592,515
    
5.8%
  
524,663
    
530,016
    
548,189
    
12.9
%
  
8.1
%
Utah
  
67,929
    
0.7%
  
52,747
    
60,958
    
62,944
    
28.8
%
  
7.9
%
Other
  
576,369
    
5.6%
  
552,514
    
569,126
    
554,135
    
4.3
%
  
4.0
%
Total loans receivable
  
$
10,283,999
    
100.0%
  
$
9,285,744
    
$
9,305,357
    
$
8,746,550
    
10.8
%
  
17.6
%


BANR - Second Quarter 2020 Results
July 22, 2020
Page 9


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)


The following table shows loan originations (excluding loans held for sale) activity for the quarters ending June 30, 2020, March 31, 2020, and June 30, 2019.
LOAN ORIGINATIONS
Quarters Ended
 
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
Commercial real estate
$
111,765
    
$
76,359
    
$
64,999
  
Multifamily real estate
6,384
    
10,171
    
19,834
  
Construction and land
290,955
    
369,613
    
368,224
  
Commercial business
1,318,438
    
199,873
    
266,768
  
Agricultural business
16,293
    
31,261
    
18,194
  
One-to four-family residential
24,537
    
31,041
    
23,363
  
Consumer
126,653
    
67,357
    
117,869
  
Total loan originations (excluding loans held for sale)
$
1,895,025
    
$
785,675
    
$
879,251
  


BANR - Second Quarter 2020 Results
July 22, 2020
Page 10

ADDITIONAL FINANCIAL INFORMATION
            
(dollars in thousands)
            
   
  Quarters Ended
CHANGE IN THE
  
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
ALLOWANCE FOR CREDIT LOSSES - LOANS
            
Balance, beginning of period
  
$
130,488
    
$
100,559
    
$
97,308
  
Beginning balance adjustment for adoption of ASC 326
  
—
    
7,812
    
—
  
Provision for credit losses - loans
  
29,524
    
21,713
    
2,000
  
Recoveries of loans previously charged off:
            
     Commercial real estate
  
54
    
167
    
149
  
     Construction and land
  
105
    
—
    
30
  
     One- to four-family real estate
  
31
    
148
    
230
  
     Commercial business
  
370
    
205
    
215
  
     Agricultural business, including secured by farmland
  
22
    
1,750
    
35
  
     Consumer
  
60
    
96
    
223
  
   
642
    
2,366
    
882
  
Loans charged off:
            
     Commercial real estate
  
—
    
(100
)
  
(393
)
     Multifamily real estate
  
—
    
(66
)
  
—
  
     Construction and land
  
(100
)
  
—
    
—
  
     One- to four-family real estate
  
—
    
(64
)
  
—
  
     Commercial business
  
(3,553
)
  
(1,384
)
  
(802
)
     Agricultural business, including secured by farmland
  
(62
)
  
—
    
(162
)
     Consumer
  
(587
)
  
(348
)
  
(579
)
   
(4,302
)
  
(1,962
)
  
(1,936
)
         Net (charge-offs)/recoveries
  
(3,660
)
  
404
    
(1,054
)
Balance, end of period
  
$
156,352
    
$
130,488
    
$
98,254
  
Net (charge-offs)/recoveries / Average loans receivable
  
(0.036
)%
  
0.004
%
  
(0.012
)%

ALLOCATION OF
            
ALLOWANCE FOR CREDIT LOSSES - LOANS
  
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
Specific or allocated credit loss allowance:
            
     Commercial real estate
  
$
53,166
    
$
29,339
    
$
26,730
  
     Multifamily real estate
  
3,504
    
2,805
    
4,344
  
     Construction and land
  
36,916
    
34,217
    
23,554
  
     One- to four-family real estate
  
12,746
    
11,884
    
4,701
  
     Commercial business
  
33,870
    
31,648
    
19,557
  
     Agricultural business, including secured by farmland
  
4,517
    
4,513
    
3,691
  
     Consumer
  
11,633
    
16,082
    
8,452
  
         Total allocated
  
156,352
    
130,488
    
91,029
  
Unallocated
  
—
    
—
    
7,225
  
              Total allowance for credit losses - loans
  
$
156,352
    
$
130,488
    
$
98,254
  
Allowance for credit losses - loans / Total loans receivable
  
1.52
%
  
1.41
%
  
1.12
%
Allowance for credit losses - loans / Non-performing loans
  
418
%
  
299
%
  
534
%

   
  Quarters Ended
CHANGE IN THE
  
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS
            
Balance, beginning of period
  
$
11,460
    
$
2,716
    
$
2,599
  
Beginning balance adjustment for adoption of ASC 326
  
—
    
7,022
    
—
  
(Recapture) / provision for credit losses - unfunded loan commitments
  
(905
)
  
1,722
    
—
  
Balance, end of period
  
$
10,555
    
$
11,460
    
$
2,599
  

BANR - Second Quarter 2020 Results
July 22, 2020
Page 11

ADDITIONAL FINANCIAL INFORMATION
              
(dollars in thousands)
              
 
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
NON-PERFORMING ASSETS
              
Loans on non-accrual status:
              
     Secured by real estate:
              
         Commercial
$
10,845
    
$
8,512
    
$
5,952
    
$
4,603
  
         Multifamily
—
    
—
    
85
    
—
  
         Construction and land
732
    
1,393
    
1,905
    
2,214
  
         One- to four-family
2,942
    
3,045
    
3,410
    
2,665
  
     Commercial business
18,486
    
25,027
    
23,015
    
2,983
  
     Agricultural business, including secured by farmland
433
    
495
    
661
    
1,359
  
     Consumer
2,412
    
1,812
    
2,473
    
3,230
  
 
35,850
    
40,284
    
37,501
    
17,054
  
Loans more than 90 days delinquent, still on accrual:
              
     Secured by real estate:
              
         Commercial
—
    
24
    
89
    
—
  
         Construction and land
—
    
1,407
    
332
    
262
  
         One- to four-family
472
    
1,089
    
877
    
995
  
     Commercial business
1
    
77
    
401
    
1
  
     Agricultural business, including secured by farmland
1,061
    
461
    
—
    
—
  
     Consumer
36
    
320
    
398
    
97
  
 
1,570
    
3,378
    
2,097
    
1,355
  
Total non-performing loans
37,420
    
43,662
    
39,598
    
18,409
  
Real estate owned (REO)
2,400
    
2,402
    
814
    
2,513
  
Other repossessed assets
47
    
47
    
122
    
112
  
         Total non-performing assets
$
39,867
    
$
46,111
    
$
40,534
    
$
21,034
  
Total non-performing assets to total assets
0.28
%
  
0.36
%
  
0.32
%
  
0.18
%

 
Quarters Ended
  
Six Months Ended
REAL ESTATE OWNED
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
  
Jun 30, 2020
  
Jun 30, 2019
Balance, beginning of period
$
2,402
    
$
814
    
$
2,611
    
$
814
    
$
2,611
  
     Additions from loan foreclosures
—
    
1,588
    
61
    
1,588
    
61
  
     Proceeds from dispositions of REO
(98
)
  
—
    
(150
)
  
(98
)
  
(150
)
     Gain (loss) on sale of REO
96
    
—
    
(9
)
  
96
    
(9
)
Balance, end of period
$
2,400
    
$
2,402
    
$
2,513
    
$
2,400
    
$
2,513
  

BANR - Second Quarter 2020 Results
July 22, 2020
Page 12


ADDITIONAL FINANCIAL INFORMATION
                        
(dollars in thousands)
                        
                         
DEPOSIT COMPOSITION
                  
Percentage Change
   
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
  
Prior Qtr
  
Prior Yr
Qtr
                         
Non-interest-bearing
  
$
5,281,559
    
$
4,107,262
    
$
3,945,000
    
$
3,671,995
    
28.6
%
  
43.8
%
Interest-bearing checking
  
1,399,593
    
1,331,860
    
1,280,003
    
1,187,035
    
5.1
%
  
17.9
%
Regular savings accounts
  
2,197,790
    
1,997,265
    
1,934,041
    
1,848,048
    
10.0
%
  
18.9
%
Money market accounts
  
2,095,332
    
1,846,844
    
1,769,194
    
1,511,119
    
13.5
%
  
38.7
%
     Total interest-bearing transaction and savings accounts
  
5,692,715
    
5,175,969
    
4,983,238
    
4,546,202
    
10.0
%
  
25.2
%
     Total core deposits
  
10,974,274
    
9,283,231
    
8,928,238
    
8,218,197
    
18.2
%
  
33.5
%
Interest-bearing certificates
  
1,042,006
    
1,166,306
    
1,120,403
    
1,070,770
    
(10.7
)%
  
(2.7
)%
     Total deposits
  
$
12,016,280
    
$
10,449,537
    
$
10,048,641
    
$
9,288,967
    
15.0
%
  
29.4
%


GEOGRAPHIC CONCENTRATION OF DEPOSITS
                        
   
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
  
Percentage Change
   
Amount
  
Percentage
  
Amount
  
Amount
  
Amount
  
Prior Qtr
  
Prior Yr
Qtr
Washington
  
$
6,765,186
    
56.3%
  
$
6,037,864
    
$
5,861,809
    
$
5,503,280
    
12.0
%
  
22.9
%
Oregon
  
2,440,617
    
20.3%
  
2,093,738
    
2,006,163
    
1,919,051
    
16.6
%
  
27.2
%
California
  
2,224,477
    
18.5%
  
1,828,064
    
1,698,289
    
1,399,137
    
21.7
%
  
59.0
%
Idaho
  
586,000
    
4.9%
  
489,871
    
482,380
    
467,499
    
19.6
%
  
25.3
%
Total deposits
  
$
12,016,280
    
100.0%
  
$
10,449,537
    
$
10,048,641
    
$
9,288,967
    
15.0
%
  
29.4
%


INCLUDED IN TOTAL DEPOSITS
  
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
Public non-interest-bearing accounts
  
$
139,133
    
$
115,354
    
$
111,015
    
$
102,348
  
Public interest-bearing transaction & savings accounts
  
136,039
    
130,958
    
133,403
    
121,262
  
Public interest-bearing certificates
  
56,609
    
48,232
    
35,184
    
28,656
  
     Total public deposits
  
$
331,781
    
$
294,544
    
$
279,602
    
$
252,266
  
Total brokered deposits
  
$
119,399
    
$
250,977
    
$
202,884
    
$
138,395
  

BANR - Second Quarter 2020 Results
July 22, 2020
Page 13

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 JUNE 30, 2020
  
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
                         
Banner Corporation-consolidated:
                        
      Total capital to risk-weighted assets
  
$
1,544,473
    
14.14
%
  
$
873,623
    
8.00
%
  
$
1,092,028
    
10.00
%
      Tier 1 capital to risk-weighted assets
  
1,307,925
    
11.98
%
  
655,217
    
6.00
%
  
655,217
    
6.00
%
      Tier 1 leverage capital to average assets
  
1,307,925
    
9.83
%
  
531,965
    
4.00
%
  
n/a
  
n/a
      Common equity tier 1 capital to risk-weighted assets
  
1,164,425
    
10.66
%
  
491,413
    
4.50
%
  
n/a
  
n/a
Banner Bank:
                        
      Total capital to risk-weighted assets
  
1,366,305
    
12.73
%
  
858,690
    
8.00
%
  
1,073,363
    
10.00
%
      Tier 1 capital to risk-weighted assets
  
1,232,095
    
11.48
%
  
644,018
    
6.00
%
  
858,690
    
8.00
%
      Tier 1 leverage capital to average assets
  
1,232,095
    
9.47
%
  
520,183
    
4.00
%
  
650,229
    
5.00
%
      Common equity tier 1 capital to risk-weighted assets
  
1,232,095
    
11.48
%
  
483,013
    
4.50
%
  
697,686
    
6.50
%
Islanders Bank:
                        
      Total capital to risk-weighted assets
  
28,579
    
15.08
%
  
15,164
    
8.00
%
  
18,955
    
10.00
%
      Tier 1 capital to risk-weighted assets
  
26,207
    
13.83
%
  
11,373
    
6.00
%
  
15,164
    
8.00
%
      Tier 1 leverage capital to average assets
  
26,207
    
8.62
%
  
12,160
    
4.00
%
  
15,200
    
5.00
%
      Common equity tier 1 capital to risk-weighted assets
  
26,207
    
13.83
%
  
8,530
    
4.50
%
  
12,321
    
6.50
%


BANR - Second Quarter 2020 Results
July 22, 2020
Page 14
ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                      
(rates / ratios annualized)
                      
                       
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
June 30, 2020
  
March 31, 2020
  
June 30, 2019
 
Average
Balance
Interest and Dividends
Yield /
Cost(3)
  
Average
Balance
Interest and Dividends
Yield /
Cost(3)
  
Average
Balance
Interest and Dividends
Yield /
Cost(3)
Interest-earning assets:
                      
Held for sale loans
$
152,636
  
$
1,451
  
3.82
%
  
$
152,627
  
$
1,520
  
4.01
%
  
$
47,663
  
$
567
  
4.77
%
Mortgage loans
7,314,125
  
87,172
  
4.79
%
  
7,310,115
  
93,061
  
5.12
%
  
6,800,802
  
90,258
  
5.32
%
Commercial/agricultural loans
2,599,878
  
25,200
  
3.90
%
  
1,884,006
  
22,959
  
4.90
%
  
1,769,603
  
24,466
  
5.55
%
Consumer and other loans
152,438
  
2,361
  
6.23
%
  
163,098
  
2,595
  
6.40
%
  
179,693
  
2,834
  
6.33
%
Total loans(1)(3)
10,219,077
  
116,184
  
4.57
%
  
9,509,846
  
120,135
  
5.08
%
  
8,797,761
  
118,125
  
5.39
%
Mortgage-backed securities
1,286,223
  
8,083
  
2.53
%
  
1,354,585
  
9,236
  
2.74
%
  
1,354,048
  
9,794
  
2.90
%
Other securities
787,957
  
5,859
  
2.99
%
  
458,116
  
3,310
  
2.91
%
  
448,721
  
3,663
  
3.27
%
Interest-bearing deposits with banks
212,502
  
172
  
0.33
%
  
92,659
  
393
  
1.71
%
  
53,955
  
340
  
2.53
%
FHLB stock
16,620
  
300
  
7.26
%
  
26,522
  
322
  
4.88
%
  
30,902
  
387
  
5.02
%
Total investment securities (3)
2,303,302
  
14,414
  
2.52
%
  
1,931,882
  
13,261
  
2.76
%
  
1,887,626
  
14,184
  
3.01
%
Total interest-earning assets
12,522,379
  
130,598
  
4.19
%
  
11,441,728
  
133,396
  
4.69
%
  
10,685,387
  
132,309
  
4.97
%
Non-interest-earning assets
1,359,975
        
1,193,256
        
1,048,811
      
Total assets
$
13,882,354
        
$
12,634,984
        
$
11,734,198
      
Deposits:
                      
Interest-bearing checking accounts
$
1,376,710
  
374
  
0.11
%
  
$
1,266,647
  
469
  
0.15
%
  
$
1,177,534
  
564
  
0.19
%
Savings accounts
2,108,896
  
998
  
0.19
%
  
2,039,857
  
1,755
  
0.35
%
  
1,851,913
  
2,119
  
0.46
%
Money market accounts
1,979,419
  
1,565
  
0.32
%
  
1,743,118
  
2,439
  
0.56
%
  
1,497,717
  
2,656
  
0.71
%
Certificates of deposit
1,117,547
  
3,757
  
1.35
%
  
1,124,994
  
4,087
  
1.46
%
  
1,105,844
  
3,684
  
1.34
%
Total interest-bearing deposits
6,582,572
  
6,694
  
0.41
%
  
6,174,616
  
8,750
  
0.57
%
  
5,633,008
  
9,023
  
0.64
%
Non-interest-bearing deposits
4,902,992
  
—
  
—
%
  
3,965,380
  
—
  
—
%
  
3,652,096
  
—
  
—
%
Total deposits
11,485,564
  
6,694
  
0.23
%
  
10,139,996
  
8,750
  
0.35
%
  
9,285,104
  
9,023
  
0.39
%
Other interest-bearing liabilities:
                      
FHLB advances
156,374
  
984
  
2.53
%
  
405,429
  
2,064
  
2.05
%
  
514,703
  
3,370
  
2.63
%
Other borrowings
285,735
  
238
  
0.34
%
  
124,771
  
116
  
0.37
%
  
122,455
  
67
  
0.22
%
Junior subordinated debentures and subordinated notes
149,043
  
1,251
  
3.38
%
  
147,944
  
1,477
  
4.02
%
  
140,212
  
1,683
  
4.81
%
Total borrowings
591,152
  
2,473
  
1.68
%
  
678,144
  
3,657
  
2.17
%
  
777,370
  
5,120
  
2.64
%
Total funding liabilities
12,076,716
  
9,167
  
0.31
%
  
10,818,140
  
12,407
  
0.46
%
  
10,062,474
  
14,143
  
0.56
%
Other non-interest-bearing liabilities(2)
188,369
        
212,162
        
151,436
      
Total liabilities
12,265,085
        
11,030,302
        
10,213,910
      
Shareholders' equity
1,617,269
        
1,604,682
        
1,520,288
      
Total liabilities and shareholders' equity
$
13,882,354
        
$
12,634,984
        
$
11,734,198
      
Net interest income/rate spread (tax equivalent)
  
$
121,431
  
3.88
%
    
$
120,989
  
4.23
%
    
$
118,166
  
4.41
%
Net interest margin (tax equivalent)
    
3.90
%
      
4.25
%
      
4.44
%
Reconciliation to reported net interest income:
                      
Adjustments for taxable equivalent basis
  
(1,974
)
      
(1,731
)
      
(1,471
)
  
Net interest income and margin, as reported
  
$
119,457
  
3.84
%
    
$
119,258
  
4.19
%
    
$
116,695
  
4.38
%
Additional Key Financial Ratios:
                      
Return on average assets
    
0.68
%
      
0.54
%
      
1.36
%
Return on average equity
    
5.85
%
      
4.23
%
      
10.47
%
Average equity/average assets
    
11.65
%
      
12.70
%
      
12.96
%
Average interest-earning assets/average interest-bearing liabilities
    
174.56
%
      
166.97
%
      
166.69
%
Average interest-earning assets/average funding liabilities
    
103.69
%
      
105.76
%
      
106.19
%
Non-interest income/average assets
    
0.81
%
      
0.61
%
      
0.78
%
Non-interest expense/average assets
    
2.60
%
      
3.03
%
      
2.96
%
Efficiency ratio(4)
    
60.85
%
      
68.76
%
      
62.22
%
Adjusted efficiency ratio(5)
    
57.95
%
      
63.47
%
      
59.56
%
(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 $1.0 million, $1.2 million, and $1.1 million for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $963,000, $522,000, and $353,000 for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively.
(4)
Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)
Adjusted non-interest expense divided by adjusted revenue.  These represent non-GAAP financial measures.  See the non-GAAP reconciliation tables above under "Executive Overview—Non-GAAP Financial Measures."
BANR - Second Quarter 2020 Results
July 22, 2020
Page 15

ADDITIONAL FINANCIAL INFORMATION
              
(dollars in thousands)
              
(rates / ratios annualized)
              
               
ANALYSIS OF NET INTEREST SPREAD
Six Months Ended
 
June 30, 2020
  
June 30, 2019
 
Average Balance
Interest and Dividends
Yield/Cost(3)
  
Average Balance
Interest and Dividends
Yield/Cost(3)
Interest-earning assets:
              
Held for sale loans
$
152,631
  
$
2,971
  
3.91
%
  
$
72,694
  
$
1,688
  
4.68
%
Mortgage loans
7,312,120
  
180,233
  
4.96
%
  
6,817,276
  
179,320
  
5.30
%
Commercial/agricultural loans
2,241,942
  
48,159
  
4.32
%
  
1,736,735
  
47,767
  
5.55
%
Consumer and other loans
157,768
  
4,956
  
6.32
%
  
181,562
  
5,754
  
6.39
%
Total loans(1)(3)
9,864,461
  
236,319
  
4.82
%
  
8,808,267
  
234,529
  
5.37
%
Mortgage-backed securities
1,320,404
  
17,319
  
2.64
%
  
1,372,978
  
20,301
  
2.98
%
Other securities
623,036
  
9,169
  
2.96
%
  
466,330
  
7,516
  
3.25
%
Interest-bearing deposits with banks
152,581
  
565
  
0.74
%
  
49,382
  
629
  
2.57
%
FHLB stock
21,571
  
622
  
5.80
%
  
31,329
  
653
  
4.20
%
Total investment securities(3)
2,117,592
  
27,675
  
2.63
%
  
1,920,019
  
29,099
  
3.06
%
Total interest-earning assets
11,982,053
  
263,994
  
4.43
%
  
10,728,286
  
263,628
  
4.96
%
Non-interest-earning assets
1,276,615
        
1,040,248
      
Total assets
$
13,258,668
        
$
11,768,534
      
Deposits:
              
Interest-bearing checking accounts
$
1,321,679
  
843
  
0.13
%
  
$
1,165,807
  
1,039
  
0.18
%
Savings accounts
2,074,377
  
2,753
  
0.27
%
  
1,853,012
  
4,039
  
0.44
%
Money market accounts
1,861,268
  
4,004
  
0.43
%
  
1,494,042
  
4,907
  
0.66
%
Certificates of deposit
1,121,270
  
7,844
  
1.41
%
  
1,179,320
  
7,681
  
1.31
%
Total interest-bearing deposits
6,378,594
  
15,444
  
0.49
%
  
5,692,181
  
17,666
  
0.63
%
Non-interest-bearing deposits
4,434,186
  
—
  
—
%
  
3,629,136
  
—
  
—
%
Total deposits
10,812,780
  
15,444
  
0.29
%
  
9,321,317
  
17,666
  
0.38
%
Other interest-bearing liabilities:
              
FHLB advances
280,901
  
3,048
  
2.18
%
  
524,417
  
6,846
  
2.63
%
Other borrowings
205,253
  
354
  
0.35
%
  
120,243
  
127
  
0.21
%
Junior subordinated debentures and subordinated notes
148,494
  
2,728
  
3.69
%
  
140,212
  
3,396
  
4.88
%
Total borrowings
634,648
  
6,130
  
1.94
%
  
784,872
  
10,369
  
2.66
%
Total funding liabilities
11,447,428
  
21,574
  
0.38
%
  
10,106,189
  
28,035
  
0.56
%
Other non-interest-bearing liabilities(2)
200,265
        
151,685
      
Total liabilities
11,647,693
        
10,257,874
      
Shareholders' equity
1,610,975
        
1,510,660
      
Total liabilities and shareholders' equity
$
13,258,668
        
$
11,768,534
      
Net interest income/rate spread (tax equivalent)
  
$
242,420
  
4.05
%
    
$
235,593
  
4.40
%
Net interest margin (tax equivalent)
    
4.07
%
      
4.43
%
Reconciliation to reported net interest income:
              
Adjustments for taxable equivalent basis
  
(3,705
)
      
(2,794
)
  
Net interest income and margin, as reported
  
$
238,715
  
4.01
%
    
$
232,799
  
4.38
%
Additional Key Financial Ratios:
              
Return on average assets
    
0.61
%
      
1.25
%
Return on average equity
    
5.05
%
      
9.75
%
Average equity/average assets
    
12.15
%
      
12.84
%
Average interest-earning assets/average interest-bearing liabilities
  
`
170.85
%
      
165.64
%
Average interest-earning assets/average funding liabilities
    
104.67
%
      
106.16
%
Non-interest income/average assets
    
0.71
%
      
0.70
%
Non-interest expense/average assets
    
2.80
%
      
3.03
%
Efficiency ratio(4)
    
64.69
%
      
64.59
%
Adjusted efficiency ratio(5)
    
60.69
%
      
61.41
%
(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 $2.2 million and $2.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and $727,000 for the six months ended June 30, 2020 and June 30, 2019, respectively.
(4)
Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)
Adjusted non-interest expense divided by adjusted revenue.  These represent non-GAAP financial measures.  See the non-GAAP reconciliation tables above under "Executive Overview—Non-GAAP Financial Measures."


BANR - Second Quarter 2020 Results
July 22, 2020
Page 16

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
  
Six Months Ended
 
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
  
Jun 30, 2020
  
Jun 30, 2019
Net interest income before provision for loan losses
$
119,457
    
$
119,258
    
$
116,695
    
$
238,715
    
$
232,799
  
Total non-interest income
27,843
    
19,165
    
22,676
    
47,008
    
40,801
  
Total GAAP revenue
147,300
    
138,423
    
139,371
    
285,723
    
273,600
  
      Exclude net gain (loss) on sale of securities
(93
)
  
(78
)
  
28
    
(171
)
  
27
  
      Exclude net change in valuation of financial instruments carried at fair value
(2,199
)
  
4,596
    
114
    
2,397
    
103
  
Adjusted revenue (non-GAAP)
$
145,008
    
$
142,941
    
$
139,513
    
$
287,949
    
$
273,730
  


ADJUSTED EARNINGS
  
Quarters Ended
  
Six Months Ended
   
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
  
Jun 30, 2020
  
Jun 30, 2019
Net income (GAAP)
  
$
23,541
    
$
16,882
    
$
39,700
    
$
40,423
    
$
73,046
  
       Exclude net gain (loss) on sale of securities
  
(93
)
  
(78
)
  
28
    
(171
)
  
27
  
Exclude net change in valuation of financial instruments carried at fair value
  
(2,199
)
  
4,596
    
114
    
2,397
    
103
  
Exclude acquisition-related expenses
  
336
    
1,142
    
301
    
1,478
    
2,449
  
Exclude COVID-19 expenses
  
2,152
    
239
    
—
    
2,391
    
—
  
Exclude related net tax benefit
  
(47
)
  
(1,405
)
  
(106
)
  
(1,452
)
  
(619
)
Total adjusted earnings (non-GAAP)
  
$
23,690
    
$
21,376
    
$
40,037
    
$
45,066
    
$
75,006
  
                     
Diluted earnings per share (GAAP)
  
$
0.67
    
$
0.47
    
$
1.14
    
$
1.14
    
$
2.09
  
Diluted adjusted earnings per share (non-GAAP)
  
$
0.67
    
$
0.60
    
$
1.15
    
$
1.27
    
$
2.14
  

BANR - Second Quarter 2020 Results
July 22, 2020
Page 17

ADDITIONAL FINANCIAL INFORMATION
                    
(dollars in thousands)
                    
ADJUSTED EFFICIENCY RATIO
  
Quarters Ended
  
Six Months Ended
   
Jun 30, 2020
  
Mar 31, 2020
  
Jun 30, 2019
  
Jun 30, 2020
  
Jun 30, 2019
Non-interest expense (GAAP)
  
$
89,637
    
$
95,185
    
$
86,716
    
$
184,822
    
$
176,730
  
Exclude acquisition-related expenses
  
(336
)
  
(1,142
)
  
(301
)
  
(1,478
)
  
(2,449
)
Exclude COVID-19 expenses
  
(2,152
)
  
(239
)
  
—
    
(2,391
)
  
—
  
Exclude CDI amortization
  
(2,002
)
  
(2,001
)
  
(2,053
)
  
(4,003
)
  
(4,105
)
Exclude state/municipal tax expense
  
(1,104
)
  
(984
)
  
(1,007
)
  
(2,088
)
  
(1,952
)
Exclude REO operations
  
(4
)
  
(100
)
  
(260
)
  
(104
)
  
(137
)
Adjusted non-interest expense (non-GAAP)
  
$
84,039
    
$
90,719
    
$
83,095
    
$
174,758
    
$
168,087
  
                     
Net interest income before provision for loan losses (GAAP)
  
$
119,457
    
$
119,258
    
$
116,695
    
$
238,715
    
$
232,799
  
Non-interest income (GAAP)
  
27,843
    
19,165
    
22,676
    
47,008
    
40,801
  
Total revenue
  
147,300
    
138,423
    
139,371
    
285,723
    
273,600
  
       Exclude net gain (loss) on sale of securities
  
(93
)
  
(78
)
  
28
    
(171
)
  
27
  
Exclude net change in valuation of financial instruments carried at fair value
  
(2,199
)
  
4,596
    
114
    
2,397
    
103
  
Adjusted revenue (non-GAAP)
  
$
145,008
    
$
142,941
    
$
139,513
    
$
287,949
    
$
273,730
  
                     
Efficiency ratio (GAAP)
  
60.85
%
  
68.76
%
  
62.22
%
  
64.69
%
  
64.59
%
Adjusted efficiency ratio (non-GAAP)
  
57.95
%
  
63.47
%
  
59.56
%
  
60.69
%
  
61.41
%

TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS
  
Jun 30, 2020
  
Mar 31, 2020
  
Dec 31, 2019
  
Jun 30, 2019
Shareholders' equity (GAAP)
  
$
1,625,103
    
$
1,601,700
    
$
1,594,034
    
$
1,521,055
  
       Exclude goodwill and other intangible assets, net
  
398,276
    
400,278
    
402,279
    
367,749
  
Tangible common shareholders' equity (non-GAAP)
  
$
1,226,827
    
$
1,201,422
    
$
1,191,755
    
$
1,153,306
  
                 
Total assets (GAAP)
  
$
14,405,607
    
$
12,780,950
    
$
12,604,031
    
$
11,847,374
  
       Exclude goodwill and other intangible assets, net
  
398,276
    
400,278
    
402,279
    
367,749
  
Total tangible assets (non-GAAP)
  
$
14,007,331
    
$
12,380,672
    
$
12,201,752
    
$
11,479,625
  
Common shareholders' equity to total assets (GAAP)
  
11.28
%
  
12.53
%
  
12.65
%
  
12.84
%
Tangible common shareholders' equity to tangible assets (non-GAAP)
  
8.76
%
  
9.70
%
  
9.77
%
  
10.05
%
                 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
                
Tangible common shareholders' equity (non-GAAP)
  
$
1,226,827
    
$
1,201,422
    
$
1,191,755
    
$
1,153,306
  
Common shares outstanding at end of period
  
35,157,899
    
35,102,459
    
35,751,576
    
34,573,643
  
Common shareholders' equity (book value) per share (GAAP)
  
$
46.22
    
$
45.63
    
$
44.59
    
$
43.99
  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)
  
$
34.89
    
$
34.23
    
$
33.33
    
$
33.36