EX-99.1 2 banner8k102120exh991.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 $36.5 Million, or $1.03 Per Diluted Share, for Third Quarter 2020
Declares Quarterly Cash Dividend of $0.41 Per Share
Commits $1.5 million to Support Minority-Owned Small Businesses

Walla Walla, WA - October 21, 2020 - Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank and Islanders Bank, today reported net income of $36.5 million, or $1.03 per diluted share, for the third quarter 2020, compared to $23.5 million, or $0.67 per diluted share, in the preceding quarter and $39.6 million, or $1.15 per diluted share, in the third quarter of 2019.  Banner’s third quarter and year-to-date earnings reflect the continuing impact of the global COVID-19 pandemic.  In the first nine months of 2020, net income was $77.0 million, or $2.17 per diluted share, compared to $112.6 million, or $3.23 per diluted share, in the first nine months a year ago.  The results for the first nine months of 2020 include $1.5 million of acquisition-related expenses, compared to $3.1 million of acquisition-related expenses in the first nine months of 2019.
Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share.  The dividend will be payable November 12, 2020, to common shareholders of record on November 3, 2020.
“The continued successful execution of our super community bank strategy generated solid revenue growth compared to both the preceding quarter and the year ago quarter.  Mortgage banking revenues more than doubled compared to a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates,” Mark Grescovich, President and CEO.  “Third quarter earnings were impacted by a number of items, including the allowance for credit losses based on the impact of the COVID-19 pandemic on the economy.  As an additional way to support the communities we serve, during this period of economic adversity, the company committed $1.5 million to selected Community Development Financial Institutions (CDFIs) in support of minority-owned small businesses as well as businesses located in economically disadvantaged rural and urban communities.  Further, as of September 30, 2020, Banner has provided SBA Paycheck Protection Program loans totaling nearly $1.15 billion to 9,103 businesses and provided deferred payments, or waived interest, on 3,370 loans totaling $1.09 billion.  We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events.”
“Due to the pandemic, and its subsequent impact on our communities, we have proactively downgraded certain modified loans and other loans we consider at risk,” Grescovich said.  “As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $168.0 million with the addition of $13.6 million in credit loss provisions during the quarter ended September 30, 2020.  This provision compares to a $29.5 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago.”  The allowance for credit losses - loans was 1.65% of total loans and 482% of non-performing loans at the end of the third quarter of 2020.

At September 30, 2020, Banner Corporation had $14.64 billion in assets, $10.00 billion in net loans and $12.22 billion in deposits.  Banner operates 170 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
COVID-19 Pandemic Update
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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 September 30, 2020, Banner had funded 9,103 applications totaling $1.15 billion of loans in its service area through the PPP program.  The deadline for PPP loan applications to the SBA was August 8, 2020.  Banner is no longer accepting new applications for PPP loans and is preparing to process applications for PPP loan forgiveness beginning in the fourth quarter of 2020.  Banner will continue to assist small businesses with other borrowing options as they become available.
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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 may be eligible for an additional deferral period for up to 90 days.  In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months.  Year to date, Banner has deferred payment or waived interest on 3,370 loans totaling $1.09 billion.  Through September 30, 2020 the deferral period had ended for approximately 78%, or $849.7 million of these loans, leaving $239.6 million still on deferral.  Of the loans still on deferral, 107 loans totaling $160.4 million have received a second deferral.  Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through September 30, 2020 pursuant to applicable accounting and regulatory guidance.


BANR - Third Quarter 2020 Results
October 21, 2020
Page 2

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Allowance for Credit Losses - Loans.  Banner recorded a provision for credit losses of $13.6 million for the third quarter of 2020, compared to a $29.5 million provision in the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago.  The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of September 30, 2020 and June 30, 2020, respectively.
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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 its clients and personnel.  To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner’s network capabilities with several upgrades.  These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $778,000 of related costs during the third quarter of 2020, compared to $2.2 million of related costs in the second quarter of 2020.
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Capital Management.  At September 30, 2020, the tangible common shareholders’ equity to tangible assets* ratio was 8.78% and Banner’s capital was well in excess of all regulatory requirements.  On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million.  In response to the COVID-19 pandemic outbreak and to preserve capital, Banner has suspended repurchases of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

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

*Tangible common shareholders’ equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

Significant Recent Initiatives and Events
On September 25, 2020, Banner completed the consolidation of six branches.  In addition, Banner has made the decision to consolidate another 14 branches in December of 2020. Client adoption of mobile and digital banking accelerated during the second and third quarters, while physical branch

BANR - Third Quarter 2020 Results
October 21, 2020
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transaction volume declined. We believe this shift in client service delivery channel preference will sustain after the pandemic social distancing related restrictions have ended.
On July 22, 2020, Banner announced plans to merge Islanders Bank into Banner Bank.  Regulatory approvals for the merger were received in October 2020, and the merger is expected to be completed in the first quarter of 2021.
On November 1, 2019, Banner completed the acquisition of AltaPacific Bancorp (AltaPacific) and its wholly-owned subsidiary, AltaPacific Bank, of Santa Rosa, California.  At closing, AltaPacific Bank had six branch locations, including one in Northern California and five in Southern California.  Pursuant to the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.
The AltaPacific merger was accounted for using the acquisition method of accounting.  Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date.  The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill.  The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date.  The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date.  The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner.  During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner’s core systems and closure of overlapping branches.
Income Statement Review
Net interest income, before the provision for credit losses, was $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.
Banner’s net interest margin on a tax equivalent basis was 3.72% for the third quarter of 2020, a 15 basis-point decrease compared to 3.87% in the preceding quarter and a 57 basis-point decrease compared to 4.29% in the third quarter a year ago.
“During the quarter, the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposits, resulting in significant growth in low yielding interest-bearing deposits, adversely impacted our net interest margin,” said Grescovich.  Acquisition accounting adjustments added seven basis points to the net interest margin in both the current quarter and in the preceding quarter and six basis points in the third quarter a year ago.  The total purchase discount for acquired loans was $17.9 million at September 30, 2020, compared to $20.2 million at June 30, 2020, and $21.3 million at September 30, 2019.  In the first nine months of the year, Banner’s net interest margin on a tax equivalent basis was 3.93% compared to 4.38% in the first nine months of 2019.
Average interest-earning asset yields decreased 18 basis points to 3.98% in the third quarter compared to 4.16% for the preceding quarter and decreased 85 basis points compared to 4.83% in the third quarter a year ago.  Average loan yields decreased ten basis points to 4.47% compared to 4.57% in the preceding quarter and decreased 77 basis points compared to 5.24% in the third quarter a year ago.  Loan discount accretion added nine basis points to loan yields in the third quarter of 2020, compared to eight basis points in the preceding quarter and seven basis points in the third quarter a year ago.  Deposit costs were 0.17% in the third quarter of 2020, a six basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the third quarter a year ago.  The decrease in deposit costs during the current quarter compared to the preceding quarter was primarily the result of decreases in market interest rates earlier this year, as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates.  The total cost of funds was 0.27% during the third quarter of 2020, a four basis-point decrease compared to the preceding quarter and a 30 basis-point decrease compared to the third quarter a year ago.
Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology.  The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of September 30, 2020 and June 30, 2020, respectively.
Total non-interest income was $28.2 million in the third quarter of 2020, compared to $27.7 million in the preceding quarter and $20.9 million in the third quarter a year ago.  Deposit fees and other service charges were $8.7 million in the third quarter of 2020, compared to $7.5 million in the preceding quarter and $10.3 million in the third quarter a year ago.  The decrease in deposit fees and other service charges from the third quarter a year ago is primarily a result of fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $16.6 million in the third quarter, compared to $14.1 million in the preceding quarter and $6.6 million in the third quarter of 2019.  The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans.  The increases compared to the third quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans due to increased production related to refinance activity as well as increased gains on the sale of multifamily held-for-sale loans.  Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2020, compared to 42% in the prior quarter and 56% in the third quarter of 2019.  In the first nine months of 2020, total non-interest income increased 22% to $75.1 million, compared to $61.7 million in the first nine months of 2019.
Banner’s third quarter 2020 results included a $37,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading as a result of the tightening of market spreads during the quarter, and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of our Visa Class B shares.  In the preceding quarter, results included a $2.2 million net gain for fair value adjustments and a $93,000 net gain on the sale of securities.  In the third quarter a year ago, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.

BANR - Third Quarter 2020 Results
October 21, 2020
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Banner’s total revenue increased 1% to $149.2 million for the third quarter of 2020, compared to $147.3 million in the preceding quarter, and increased 9% compared to $137.5 million in the third quarter a year ago.  Year-to-date, total revenues increased 6% to $435.0 million compared to $411.1 million for the same period one year earlier.  Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $148.6 million in the third quarter of 2020, compared to $145.0 million in the preceding quarter and $137.6 million in the third quarter of 2019.  In the first nine months of the year, adjusted revenue* was $436.5 million, compared to $411.3 million in the first nine months of 2019.
Total non-interest expense was $91.6 million in the third quarter of 2020, compared to $89.6 million in the preceding quarter and $87.3 million in the third quarter of 2019.  The increase in non-interest expense reflects an increase in the provision for credit losses - unfunded commitments in the current quarter.  The current quarter includes a $1.5 million of provision for credit losses - unfunded loan commitments compared to a $905,000 recapture of provision for the prior quarter and no provision for the year ago quarter.  A reduction in capitalized loan origination costs during third quarter of 2020, primarily related to the decline in the origination of SBA PPP loans compared to the prior quarter, also contributed to the quarter-over-quarter increase in non-interest expense.  The decrease in COVID-19 expenses during the current quarter as well as lower salary and employee benefits as a result of lower medical claims partially offset these increases.  The year-over-year increase also reflects an FDIC credit of $2.7 million for previously paid deposit insurance premiums which resulted in a net deposit insurance benefit of $1.6 million for the quarter ended September 30, 2019.  Acquisition-related expenses were $5,000 for the third quarter of 2020, compared to $336,000 for the preceding quarter and $676,000 in the third quarter a year ago.  Year-to-date, total non-interest expense was $276.4 million, compared to $264.0 million in the same period a year earlier.  Banner’s efficiency ratio was 61.35% for the current quarter, compared to 60.85% in the preceding quarter and 63.50% in the year ago quarter.  Banner’s adjusted efficiency ratio* was 59.05% for the current quarter, compared to 57.95% in the preceding quarter and 60.71% in the year ago quarter.
For the third quarter of 2020, Banner had $7.5 million in state and federal income tax expense for an effective tax rate of 17.0%, reflecting the benefits from tax exempt income.  Banner’s statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review
Total assets increased 2% to $14.64 billion at September 30, 2020, compared to $14.41 billion at June 30, 2020, and increased 21% when compared to $12.10 billion at September 30, 2019.  The total of securities and interest-bearing deposits held at other banks was $2.63 billion at September 30, 2020, compared to $2.30 billion at June 30, 2020 and $1.87 billion at September 30, 2019.  The average effective duration of Banner's securities portfolio was approximately 4.0 years at September 30, 2020, compared to 3.1 years at September 30, 2019.
Net loans receivable decreased 1% to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019.  The year-over-year increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020, which totaled $1.15 billion as of September 30, 2020 and also included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019.  Commercial real estate and multifamily real estate loans decreased to $4.07 billion at September 30, 2020, compared to $4.11 billion at June 30, 2020, and increased 11% compared to $3.67 billion a year ago.  Commercial business loans decreased 1% to $3.11 billion at September 30, 2020, compared to $3.15 billion at June 30, 2020, and increased 52% compared to $2.05 billion a year ago primarily due to SBA PPP loans.  Agricultural business loans decreased to $326.2 million at September 30, 2020, compared to $328.1 million three months earlier and $356.0 million a year ago.  Total construction, land and land development loans were $1.27 billion at September 30, 2020, a 3% increase from $1.24 billion at June 30, 2020, and a 9% increase compared to $1.16 billion a year earlier.  Consumer loans decreased to $622.8 million at September 30, 2020, compared to $642.4 million at June 30, 2020, and $685.1 million a year ago.  One- to four-family loans decreased to $771.4 million at September 30, 2020, compared to $817.8 million at June 30, 2020, and $909.0 million a year ago.
Loans held for sale were $185.9 million at September 30, 2020, compared to $258.7 million at June 30, 2020, and $244.9 million at September 30, 2019.  The volume of one- to four- family residential mortgage loans sold was $327.7 million in the current quarter, compared to $292.4 million in the preceding quarter and $204.6 million in the third quarter a year ago.  During the third quarter of 2020, Banner sold $108.6 million in multifamily loans compared to $3.1 million in the preceding quarter and $79.4 million in the third quarter a year ago.  The lower level of multifamily loan sales in the second quarter of 2020 reflects a temporary disruption in the secondary market for multifamily loans as a result of the COVID-19 pandemic.
Total deposits increased 2% to $12.22 billion at September 30, 2020, compared to $12.02 billion at June 30, 2020, and increased 26% when compared to $9.73 billion a year ago.  The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in deposits accounts due to changes in spending habits during the COVID-19 pandemic.  The year-over-year increase in deposits also included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019.  Non-interest-bearing account balances increased 2% to $5.41 billion at September 30, 2020, compared to $5.28 billion at June 30, 2020, and increased 39% compared to $3.89 billion a year ago.  Core deposits increased 3% from the prior quarter and increased 33% compared to a year ago and represented 93% of total deposits at September 30, 2020, compared to 91% at June 30, 2020.  Certificates of deposit decreased 12% to $915.4 million at September 30, 2020, compared to $1.04 billion at June 30, 2020, and decreased 25% compared to $1.22 billion a year earlier.  Banner had no brokered deposits at September 30, 2020, compared to $119.4 million in brokered deposits at June 30, 2020 and $299.5 million a year ago.  FHLB borrowings totaled $150.0 million at September 30, 2020, compared to $150.0 million at June 30, 2020, and $382.0 million a year earlier.
At September 30, 2020, total common shareholders’ equity was $1.65 billion, or 11.25% of assets, compared to $1.63 billion or 11.28% of assets at June 30, 2020, and $1.53 billion or 12.65% of assets a year ago.  At September 30, 2020, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.25 billion, or 8.78% of tangible assets*, compared to $1.23 billion, or 8.76% of tangible assets, at June 30, 2020, and $1.17 billion, or 9.93% of tangible assets, a year ago.  Banner’s tangible book value per share* increased to $35.56 at September 30, 2020, compared to $34.10 per share a year ago.

BANR - Third Quarter 2020 Results
October 21, 2020
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Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.”  At September 30, 2020, Banner's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 9.56%, and its total capital to risk-weighted assets ratio was 14.65%.
Credit Quality
The allowance for credit losses - loans was $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, compared to $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, and $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans.  In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments which was $12.1 million at September 30, 2020, compared to $10.6 million at June 30, 2020 and $2.6 million at September 30, 2019.  Net loan charge-offs totaled $2.0 million in the third quarter of 2020, compared to net loan charge-offs of $3.7 million in the preceding quarter and $2.5 million of net charge-offs in the third quarter a year ago.  Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses.  Non-performing loans were $34.8 million at September 30, 2020, compared to $37.4 million at June 30, 2020, and $18.3 million a year ago.  Real estate owned and other repossessed assets were $1.8 million at September 30, 2020, compared to $2.4 million at June 30, 2020, and $343,000 a year ago.
In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses.  Credit discounts are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date.  At September 30, 2020, the total purchase discount for acquired loans was $17.9 million.
Banner’s total substandard loans were $423.2 million at September 30, 2020, compared to $359.8 million at June 30, 2020, and $113.2 million a year ago.  The increase in substandard loans during the most recent quarters primarily reflects Banner proactively downgrading loans in industries most at risk due to COVID-19.
Banner’s total non-performing assets were $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets, at June 30, 2020, and $18.6 million, or 0.15% of total assets, a year ago.
Conference Call
Banner will host a conference call on Thursday, October 22, 2020, at 8:00 a.m. PDT, to discuss its third quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10147897, or at www.bannerbank.com.
About the Company
Banner Corporation is a $14.64 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans.  Visit Banner Bank on the Web at www.bannerbank.com.
Forward-Looking Statements
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner’s operating and stock price performance.
The COVID-19, pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1)  the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation;

BANR - Third Quarter 2020 Results
October 21, 2020
Page 6

(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 - Third Quarter 2020 Results
October 21, 2020
Page 7


RESULTS OF OPERATIONS
  
Quarters Ended
  
Nine Months Ended
(in thousands except shares and per share data)
  
Sep 30, 2020
  
June 30, 2020
  
Sep 30, 2019
  
Sep 30, 2020
  
Sep 30, 2019
                     
INTEREST INCOME:
      
 
  
 
  
 
  
 
Loans receivable
  
$
116,716 
    
$
115,173 
    
$
118,096 
    
$
350,815 
    
$
350,558 
  
Mortgage-backed securities
  
7,234 
    
7,983 
    
9,415 
    
24,354 
    
29,716 
  
Securities and cash equivalents
  
5,631 
    
5,591 
    
3,925 
    
14,824 
    
11,996 
  
 
  
129,581 
    
128,747 
    
131,436 
    
389,993 
    
392,270 
  
INTEREST EXPENSE:
  
 
      
 
  
 
  
 
Deposits
  
5,179 
    
6,694 
    
10,014 
    
20,623 
    
27,680 
  
Federal Home Loan Bank advances
  
988 
    
984 
    
3,107 
    
4,036 
    
9,953 
  
Other borrowings
  
128 
    
238 
    
82 
    
482 
    
209 
  
Junior subordinated debentures and subordinated notes
  
2,260 
    
1,251 
    
1,612 
    
4,988 
    
5,008 
  
 
  
8,555 
    
9,167 
    
14,815 
    
30,129 
    
42,850 
  
Net interest income before provision for credit losses
  
121,026 
    
119,580 
    
116,621 
    
359,864 
    
349,420 
  
PROVISION FOR CREDIT LOSSES
  
13,641 
    
29,528 
    
2,000 
    
64,917 
    
6,000 
  
Net interest income
  
107,385 
    
90,052 
    
114,621 
    
294,947 
    
343,420 
  
NON-INTEREST INCOME:
  
 
      
 
  
 
  
 
Deposit fees and other service charges
  
8,742 
    
7,546 
    
10,331 
    
26,091 
    
36,995 
  
Mortgage banking operations
  
16,562 
    
14,138 
    
6,616 
    
40,891 
    
15,967 
  
Bank-owned life insurance
  
1,286 
    
2,317 
    
1,076 
    
4,653 
    
3,475 
  
Miscellaneous
  
951 
    
1,427 
    
2,914 
    
5,017 
    
5,431 
  
 
  
27,541 
    
25,428 
    
20,937 
    
76,652 
    
61,868 
  
Net gain (loss) on sale of securities
  
644 
    
93 
    
(2)
    
815 
    
(29)
  
Net change in valuation of financial instruments carried at fair value
  
37 
    
2,199 
    
(69)
    
(2,360)
    
(172)
  
Total non-interest income
  
28,222 
    
27,720 
    
20,866 
    
75,107 
    
61,667 
  
NON-INTEREST EXPENSE:
  
 
      
 
  
 
  
 
Salary and employee benefits
  
61,171 
    
63,415 
    
59,090 
    
184,494 
    
169,359 
  
Less capitalized loan origination costs
  
(8,517)
    
(11,110)
    
(7,889)
    
(25,433)
    
(20,137)
  
Occupancy and equipment
  
13,022 
    
12,985 
    
12,566 
    
39,114 
    
39,013 
  
Information / computer data services
  
6,090 
    
6,084 
    
5,657 
    
17,984 
    
16,256 
  
Payment and card processing services
  
4,044 
    
3,851 
    
4,330 
    
12,135 
    
12,355 
  
Professional and legal expenses
  
2,368 
    
2,163 
    
2,704 
    
6,450 
    
7,474 
  
Advertising and marketing
  
1,105 
    
652 
    
2,221 
    
3,584 
    
5,815 
  
Deposit insurance expense
  
1,628 
    
1,705 
    
(1,604)
    
4,968 
    
1,232 
  
State/municipal business and use taxes
  
1,196 
    
1,104 
    
1,011 
    
3,284 
    
2,963 
  
Real estate operations
  
(11)
    
4 
    
126 
    
93 
    
263 
  
Amortization of core deposit intangibles
  
1,864 
    
2,002 
    
1,985 
    
5,867 
    
6,090 
  
Provision/(recapture) for credit losses - unfunded loan commitments
  
1,539 
    
(905)
    
— 
    
2,356 
    
— 
  
Miscellaneous
  
5,285 
    
5,199 
    
6,435 
    
16,841 
    
20,230 
  
   
90,784 
    
87,149 
    
86,632 
    
271,737 
    
260,913 
  
COVID-19 expenses
  
778 
    
2,152 
    
— 
    
3,169 
    
— 
  
Acquisition-related expenses
  
5 
    
336 
    
676 
    
1,483 
    
3,125 
  
Total non-interest expense
  
91,567 
    
89,637 
    
87,308 
    
276,389 
    
264,038 
  
Income before provision for income taxes
  
44,040 
    
28,135 
    
48,179 
    
93,665 
    
141,049 
  
PROVISION FOR INCOME TAXES
  
7,492 
    
4,594 
    
8,602 
    
16,694 
    
28,426 
  
NET INCOME
  
$
36,548 
    
$
23,541 
    
$
39,577 
    
$
76,971 
    
$
112,623 
  
Earnings per share available to common shareholders:
  
 
      
 
  
 
  
 
Basic
  
$
1.04 
    
$
0.67 
    
$
1.15 
    
$
2.18 
    
$
3.24 
  
Diluted
  
$
1.03 
    
$
0.67 
    
$
1.15 
    
$
2.17 
    
$
3.23 
  
Cumulative dividends declared per common share
  
$
0.41 
    
$
— 
    
$
0.41 
    
$
0.82 
    
$
1.23 
  
Weighted average common shares outstanding:
      
 
  
 
  
 
  
 
Basic
  
35,193,109 
    
35,189,260 
    
34,407,462 
    
35,285,567 
    
34,760,607 
  
Diluted
  
35,316,679 
    
35,283,690 
    
34,497,994 
    
35,524,771 
    
34,850,006 
  
Increase (decrease) in common shares outstanding
  
669 
    
55,440 
    
(400,286)
    
(593,008)
    
(1,009,415)
  

BANR - Third Quarter 2020 Results
October 21, 2020
Page 8

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

BANR - Third Quarter 2020 Results
October 21, 2020
Page 9

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

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







BANR - Third Quarter 2020 Results
October 21, 2020
Page 10


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)


The following table shows loan originations (excluding loans held for sale) activity for the quarters ending September 30, 2020, June 30, 2020, and September 30, 2019.
LOAN ORIGINATIONS
Quarters Ended
 
Sep 30, 2020
  
June 30, 2020
  
Sep 30, 2019
Commercial real estate
$
74,400 
    
$
111,765 
    
$
106,690 
  
Multifamily real estate
2,664 
    
6,384 
    
27,522 
  
Construction and land
412,463 
    
290,955 
    
303,151 
  
Commercial business
153,577 
    
1,318,438 
    
208,277 
  
Agricultural business
16,990 
    
16,293 
    
10,993 
  
One-to four-family residential
32,733 
    
24,537 
    
27,184 
  
Consumer
132,100 
    
126,653 
    
99,823 
  
Total loan originations (excluding loans held for sale)
$
824,927 
    
$
1,895,025 
    
$
783,640 
  











BANR - Third Quarter 2020 Results
October 21, 2020
Page 11

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

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

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

BANR - Third Quarter 2020 Results
October 21, 2020
Page 12

ADDITIONAL FINANCIAL INFORMATION
              
(dollars in thousands)
              
 
Sep 30, 2020
  
June 30, 2020
  
Dec 31, 2019
  
Sep 30, 2019
NON-PERFORMING ASSETS
    
 
  
 
  
 
Loans on non-accrual status:
    
 
  
 
  
 
Secured by real estate:
    
 
  
 
  
 
Commercial
$
7,824 
    
$
10,845 
    
$
5,952 
    
$
5,092 
  
Multifamily
— 
    
— 
    
85 
    
87 
  
Construction and land
937 
    
732 
    
1,905 
    
1,318 
  
One- to four-family
2,978 
    
2,942 
    
3,410 
    
3,007 
  
Commercial business
14,867 
    
18,486 
    
23,015 
    
3,035 
  
Agricultural business, including secured by farmland
2,066 
    
433 
    
661 
    
757 
  
Consumer
2,896 
    
2,412 
    
2,473 
    
2,473 
  
 
31,568 
    
35,850 
    
37,501 
    
15,769 
  
Loans more than 90 days delinquent, still on accrual:
    
 
  
 
  
 
Secured by real estate:
    
 
  
 
  
 
Commercial
— 
    
— 
    
89 
    
89 
  
Construction and land
— 
    
— 
    
332 
    
1,141 
  
One- to four-family
2,649 
    
472 
    
877 
    
652 
  
Commercial business
425 
    
1 
    
401 
    
358 
  
Agricultural business, including secured by farmland
— 
    
1,061 
    
— 
    
— 
  
Consumer
181 
    
36 
    
398 
    
247 
  
 
3,255 
    
1,570 
    
2,097 
    
2,487 
  
Total non-performing loans
34,823 
    
37,420 
    
39,598 
    
18,256 
  
Real estate owned (REO)
1,795 
    
2,400 
    
814 
    
228 
  
Other repossessed assets
37 
    
47 
    
122 
    
115 
  
Total non-performing assets
$
36,655 
    
$
39,867 
    
$
40,534 
    
$
18,599 
  
Total non-performing assets to total assets
0.25 
%
  
0.28 
%
  
0.32 
%
  
0.15 
%

 
Sep 30, 2020
  
June 30, 2020
  
Dec 31, 2019
  
Sep 30, 2019
LOANS BY CREDIT RISK RATING
    
 
  
 
  
 
     
 
  
 
  
 
Pass
$
9,699,098 
    
$
9,869,917 
    
$
9,130,662 
    
$
8,702,171 
  
Special Mention
41,575 
    
54,291 
    
61,189 
    
19,989 
  
Substandard
423,244 
    
359,791 
    
113,448 
    
113,150 
  
Doubtful
— 
    
— 
    
58 
    
58 
  
Total
$
10,163,917 
    
$
10,283,999 
    
$
9,305,357 
    
$
8,835,368 
  

 
Quarters Ended
  
Nine Months Ended
REAL ESTATE OWNED
Sep 30, 2020
  
June 30, 2020
  
Sep 30, 2019
  
Sep 30, 2020
  
Sep 30, 2019
Balance, beginning of period
$
2,400 
    
$
2,402 
    
$
2,513 
    
$
814 
    
$
2,611 
  
Additions from loan foreclosures
— 
    
— 
    
48 
    
1,588 
    
109 
  
Proceeds from dispositions of REO
(707)
    
(98)
    
(2,333)
    
(805)
    
(2,483)
  
Gain (loss) on sale of REO
120 
    
96 
    
— 
    
216 
    
(9)
  
Valuation adjustments in the period
(18)
    
— 
    
— 
    
(18)
    
— 
  
Balance, end of period
$
1,795 
    
$
2,400 
    
$
228 
    
$
1,795 
    
$
228 
  

BANR - Third Quarter 2020 Results
October 21, 2020
Page 13


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

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

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








BANR - Third Quarter 2020 Results
October 21, 2020
Page 14

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













BANR - Third Quarter 2020 Results
October 21, 2020
Page 15

ADDITIONAL FINANCIAL INFORMATION
                                  
(dollars in thousands)
                                  
(rates / ratios annualized)
                                  
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
September 30, 2020
  
June 30, 2020
  
September 30, 2019
 
Average
Balance
  
Interest and Dividends
  
Yield /
Cost(3)
  
Average
Balance
  
Interest and Dividends
  
Yield /
Cost(3)
  
Average
Balance
  
Interest and Dividends
  
Yield /
Cost(3)
Interest-earning assets:
                                  
Held for sale loans
$
161,385 
    
$
1,535 
    
3.78 
%
  
$
152,636 
    
$
1,451 
    
3.82 
%
  
$
154,529 
    
$
1,607 
    
4.13 
%
Mortgage loans
7,339,181 
    
88,011 
    
4.77 
%
  
7,314,125 
    
87,172 
    
4.79 
%
  
6,872,426 
    
90,268 
    
5.21 
%
Commercial/agricultural loans
2,862,291 
    
26,396 
    
3.67 
%
  
2,599,878 
    
25,200 
    
3.90 
%
  
1,809,397 
    
24,319 
    
5.33 
%
Consumer and other loans
140,493 
    
2,195 
    
6.22 
%
  
152,438 
    
2,361 
    
6.23 
%
  
173,342 
    
2,791 
    
6.39 
%
Total loans(1)(3)
10,503,350 
    
118,137 
    
4.47 
%
  
10,219,077 
    
116,184 
    
4.57 
%
  
9,009,694 
    
118,985 
    
5.24 
%
Mortgage-backed securities
1,250,759 
    
7,333 
    
2.33 
%
  
1,286,223 
    
8,083 
    
2.53 
%
  
1,358,448 
    
9,484 
    
2.77 
%
Other securities
884,916 
    
6,036 
    
2.71 
%
  
787,957 
    
5,859 
    
2.99 
%
  
414,994 
    
3,378 
    
3.23 
%
Equity securities
379,483 
    
186 
    
0.19 
%
  
114,349 
    
123 
    
0.43 
%
  
— 
    
— 
    
— 
%
Interest-bearing deposits with banks
171,894 
    
123 
    
0.28 
%
  
212,502 
    
172 
    
0.33 
%
  
82,836 
    
489 
    
2.34 
%
FHLB stock
16,363 
    
163 
    
3.96 
%
  
16,620 
    
300 
    
7.26 
%
  
29,400 
    
378 
    
5.10 
%
Total investment securities (3)
2,703,415 
    
13,841 
    
2.04 
%
  
2,417,651 
    
14,537 
    
2.42 
%
  
1,885,678 
    
13,729 
    
2.89 
%
Total interest-earning assets
13,206,765 
    
131,978 
    
3.98 
%
  
12,636,728 
    
130,721 
    
4.16 
%
  
10,895,372 
    
132,714 
    
4.83 
%
Non-interest-earning assets
1,259,816 
    
 
  
 
  
1,245,626 
            
1,078,621 
    
 
  
 
Total assets
$
14,466,581 
    
 
  
 
  
$
13,882,354 
            
$
11,973,993 
    
 
  
 
Deposits:
 
  
 
  
 
              
 
  
 
  
 
Interest-bearing checking accounts
$
1,413,085 
    
321 
    
0.09 
%
  
$
1,376,710 
    
374 
    
0.11 
%
  
$
1,194,633 
    
621 
    
0.21 
%
Savings accounts
2,251,294 
    
813 
    
0.14 
%
  
2,108,896 
    
998 
    
0.19 
%
  
1,854,967 
    
2,244 
    
0.48 
%
Money market accounts
2,096,037 
    
1,224 
    
0.23 
%
  
1,979,419 
    
1,565 
    
0.32 
%
  
1,542,264 
    
2,944 
    
0.76 
%
Certificates of deposit
966,028 
    
2,821 
    
1.16 
%
  
1,117,547 
    
3,757 
    
1.35 
%
  
1,155,710 
    
4,205 
    
1.44 
%
Total interest-bearing deposits
6,726,444 
    
5,179 
    
0.31 
%
  
6,582,572 
    
6,694 
    
0.41 
%
  
5,747,574 
    
10,014 
    
0.69 
%
Non-interest-bearing deposits
5,340,688 
    
— 
    
— 
%
  
4,902,992 
    
— 
    
— 
%
  
3,786,143 
    
— 
    
— 
%
Total deposits
12,067,132 
    
5,179 
    
0.17 
%
  
11,485,564 
    
6,694 
    
0.23 
%
  
9,533,717 
    
10,014 
    
0.42 
%
Other interest-bearing liabilities:
 
  
 
  
 
          
 
  
 
  
 
  
 
FHLB advances
150,000 
    
988 
    
2.62 
%
  
156,374 
    
984 
    
2.53 
%
  
476,435 
    
3,107 
    
2.59 
%
Other borrowings
177,628 
    
128 
    
0.29 
%
  
285,735 
    
238 
    
0.34 
%
  
122,035 
    
82 
    
0.27 
%
Junior subordinated debentures and subordinated notes
247,944 
    
2,260 
    
3.63 
%
  
149,043 
    
1,251 
    
3.38 
%
  
140,212 
    
1,612 
    
4.56 
%
Total borrowings
575,572 
    
3,376 
    
2.33 
%
  
591,152 
    
2,473 
    
1.68 
%
  
738,682 
    
4,801 
    
2.58 
%
Total funding liabilities
12,642,704 
    
8,555 
    
0.27 
%
  
12,076,716 
    
9,167 
    
0.31 
%
  
10,272,399 
    
14,815 
    
0.57 
%
Other non-interest-bearing liabilities(2)
193,256 
    
 
  
 
  
188,369 
            
163,809 
    
 
  
 
Total liabilities
12,835,960 
    
 
  
 
  
12,265,085 
            
10,436,208 
    
 
  
 
Shareholders’ equity
1,630,621 
    
 
  
 
  
1,617,269 
            
1,537,785 
    
 
  
 
Total liabilities and shareholders’ equity
$
14,466,581 
    
 
  
 
  
$
13,882,354 
            
$
11,973,993 
    
 
  
 
Net interest income/rate spread (tax equivalent)
    
$
123,423 
    
3.71 
%
      
$
121,554 
    
3.85 
%
      
$
117,899 
    
4.26 
%
Net interest margin (tax equivalent)
        
3.72 
%
          
3.87 
%
          
4.29 
%
Reconciliation to reported net interest income:
                                  
Adjustments for taxable equivalent basis
    
(2,397)
            
(1,974)
            
(1,278)
      
Net interest income and margin, as reported
    
$
121,026 
    
3.65 
%
      
$
119,580 
    
3.81 
%
      
$
116,621 
    
4.25 
%
Additional Key Financial Ratios:
                                  
Return on average assets
        
1.01 
%
          
0.68 
%
          
1.31 
%
Return on average equity
        
8.92 
%
          
5.85 
%
          
10.21 
%
Average equity/average assets
        
11.27 
%
          
11.65 
%
          
12.84 
%
Average interest-earning assets/average interest-bearing liabilities
        
180.86 
%
          
176.15 
%
          
167.98 
%
Average interest-earning assets/average funding liabilities
        
104.46 
%
          
104.64 
%
          
106.06 
%
Non-interest income/average assets
        
0.78 
%
          
0.80 
%
          
0.69 
%
Non-interest expense/average assets
        
2.52 
%
          
2.60 
%
          
2.89 
%
Efficiency ratio(4)
        
61.35 
%
          
60.85 
%
          
63.50 
%
Adjusted efficiency ratio(5)
        
59.05 
%
          
57.95 
%
          
60.71 
%
(1)
Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
(2)
Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)
Tax-exempt income is calculated on a tax equivalent basis.  The tax equivalent yield adjustment to interest earned on loans was $1.4 million, $1.0 million, and $889,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $976,000, $963,000, and $389,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively.
(4)
Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)
Adjusted non-interest expense divided by adjusted revenue.  These represent non-GAAP financial measures.  See the non-GAAP Financial Measures on the final two pages of the press release tables.

BANR - Third Quarter 2020 Results
October 21, 2020
Page 16

ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                      
(rates / ratios annualized)
                      
ANALYSIS OF NET INTEREST SPREAD
Nine Months Ended
 
September 30, 2020
  
September 30, 2019
 
Average
Balance
  
Interest and Dividends
  
Yield/
Cost(3)
  
Average
Balance
  
Interest and Dividends
  
Yield/
Cost(3)
Interest-earning assets:
                      
Held for sale loans
$
155,571 
    
$
4,506 
    
3.87 
%
  
$
100,273 
    
$
3,295 
    
4.39 
%
Mortgage loans
7,321,206 
    
268,244 
    
4.89 
%
  
6,835,861 
    
269,588 
    
5.27 
%
Commercial/agricultural loans
2,450,234 
    
74,555 
    
4.06 
%
  
1,761,222 
    
72,086 
    
5.47 
%
Consumer and other loans
151,968 
    
7,151 
    
6.29 
%
  
178,792 
    
8,545 
    
6.39 
%
Total loans(1)(3)
10,078,979 
    
354,456 
    
4.70 
%
  
8,876,148 
    
353,514 
    
5.32 
%
Mortgage-backed securities
1,297,020 
    
24,652 
    
2.54 
%
  
1,368,081 
    
29,785 
    
2.91 
%
Other securities
710,967 
    
15,205 
    
2.86 
%
  
449,030 
    
10,894 
    
3.24 
%
Equity securities
165,395 
    
309 
    
0.25 
%
  
— 
    
— 
    
— 
%
Interest-bearing deposits with banks
159,065 
    
688 
    
0.58 
%
  
60,655 
    
1,118 
    
2.46 
%
FHLB stock
19,822 
    
785 
    
5.29 
%
  
30,679 
    
1,031 
    
4.49 
%
Total investment securities(3)
2,352,269 
    
41,639 
    
2.36 
%
  
1,908,445 
    
42,828 
    
3.00 
%
Total interest-earning assets
12,431,248 
    
396,095 
    
4.26 
%
  
10,784,593 
    
396,342 
    
4.91 
%
Non-interest-earning assets
1,232,997 
    
 
      
1,053,180 
          
Total assets
$
13,664,245 
    
 
      
$
11,837,773 
          
Deposits:
 
  
 
                
Interest-bearing checking accounts
$
1,352,369 
    
1,164 
    
0.11 
%
  
$
1,175,521 
    
1,660 
    
0.19 
%
Savings accounts
2,133,780 
    
3,566 
    
0.22 
%
  
1,853,671 
    
6,283 
    
0.45 
%
Money market accounts
1,940,096 
    
5,228 
    
0.36 
%
  
1,510,293 
    
7,851 
    
0.70 
%
Certificates of deposit
1,069,145 
    
10,665 
    
1.33 
%
  
1,171,363 
    
11,886 
    
1.36 
%
Total interest-bearing deposits
6,495,390 
    
20,623 
    
0.42 
%
  
5,710,848 
    
27,680 
    
0.65 
%
Non-interest-bearing deposits
4,738,559 
    
— 
    
— 
%
  
3,682,047 
    
— 
    
— 
%
Total deposits
11,233,949 
    
20,623 
    
0.25 
%
  
9,392,895 
    
27,680 
    
0.39 
%
Other interest-bearing liabilities:
 
  
 
  
 
  
 
  
 
  
 
FHLB advances
236,949 
    
4,036 
    
2.28 
%
  
508,247 
    
9,953 
    
2.62 
%
Other borrowings
195,977 
    
482 
    
0.33 
%
  
120,847 
    
209 
    
0.23 
%
Junior subordinated debentures and subordinated notes
181,886 
    
4,988 
    
3.66 
%
  
140,212 
    
5,008 
    
4.78 
%
Total borrowings
614,812 
    
9,506 
    
2.07 
%
  
769,306 
    
15,170 
    
2.64 
%
Total funding liabilities
11,848,761 
    
30,129 
    
0.34 
%
  
10,162,201 
    
42,850 
    
0.56 
%
Other non-interest-bearing liabilities(2)
197,912 
    
 
      
155,771 
          
Total liabilities
12,046,673 
    
 
      
10,317,972 
          
Shareholders’ equity
1,617,572 
    
 
      
1,519,801 
          
Total liabilities and shareholders’ equity
$
13,664,245 
    
 
      
$
11,837,773 
          
Net interest income/rate spread (tax equivalent)
    
$
365,966 
    
3.92 
%
      
$
353,492 
    
4.35 
%
Net interest margin (tax equivalent)
        
3.93 
%
          
4.38 
%
Reconciliation to reported net interest income:
                      
Adjustments for taxable equivalent basis
    
(6,102)
            
(4,072)
      
Net interest income and margin, as reported
    
$
359,864 
    
3.87 
%
      
$
349,420 
    
4.33 
%
Additional Key Financial Ratios:
                      
Return on average assets
        
0.75 
%
          
1.27 
%
Return on average equity
        
6.36 
%
          
9.91 
%
Average equity/average assets
        
11.84 
%
          
12.84 
%
Average interest-earning assets/average interest-bearing liabilities
    
`
  
174.84 
%
          
166.42 
%
Average interest-earning assets/average funding liabilities
        
104.92 
%
          
106.12 
%
Non-interest income/average assets
        
0.73 
%
          
0.70 
%
Non-interest expense/average assets
        
2.70 
%
          
2.98 
%
Efficiency ratio(4)
        
63.54 
%
          
64.23 
%
Adjusted efficiency ratio(5)
        
60.13 
%
          
61.17 
%
(1)
Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
(2)
Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)
Tax-exempt income is calculated on a tax equivalent basis.  The tax equivalent yield adjustment to interest earned on loans was $3.6 million and $3.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.5 million and $1.1 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.
(4)
Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)
Adjusted non-interest expense divided by adjusted revenue.  These represent non-GAAP financial measures.  See the non-GAAP Financial Measures on the final two pages of the press release tables.

BANR - Third Quarter 2020 Results
October 21, 2020
Page 17

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, 2020
  
June 30, 2020
  
Sep 30, 2019
  
Sep 30, 2020
  
Sep 30, 2019
Net interest income before provision for credit losses
$
121,026 
    
$
119,580 
    
$
116,621 
    
$
359,864 
    
$
349,420 
  
Total non-interest income
28,222 
    
27,720 
    
20,866 
    
75,107 
    
61,667 
  
Total GAAP revenue
149,248 
    
147,300 
    
137,487 
    
434,971 
    
411,087 
  
Exclude net (gain) loss on sale of securities
(644)
    
(93)
    
2 
    
(815)
    
29 
  
Exclude net change in valuation of financial instruments carried at fair value
(37)
    
(2,199)
    
69 
    
2,360 
    
172 
  
Adjusted revenue (non-GAAP)
$
148,567 
    
$
145,008 
    
$
137,558 
    
$
436,516 
    
$
411,288 
  

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




BANR - Third Quarter 2020 Results
October 21, 2020
Page 18

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

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