REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2019

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

REGULATORY CAPITAL REQUIREMENTS

 REGULATORY CAPITAL REQUIREMENTS

Banner Corporation is a bank holding company registered with the Federal Reserve.  Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended (BHCA), and the regulations of the Federal Reserve.  Banner Bank and Islanders Bank, as state-chartered federally insured commercial banks, are subject to the capital requirements established by the FDIC.  The Federal Reserve requires Banner to maintain capital adequacy that generally parallels the FDIC requirements.

The following table shows the regulatory capital ratios of the Company and the Banks and the minimum regulatory requirements (dollars in thousands):

	Actual				Minimum for Capital Adequacy Purposes				Minimum to be Categorized as “Well-Capitalized” Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019:
The Company—consolidated:
Total capital to risk-weighted assets	$	1,386,483	12.93	%	$	857,546	8.00	%	$	1,071,933	10.00	%
Tier 1 capital to risk-weighted assets	1,283,208		11.97		643,160		6.00		643,160		6.00
Tier 1 common equity to risk-weighted assets	1,139,708		10.63		482,370		4.50		n/a		n/a
Tier 1 capital to average leverage assets	1,283,208		10.71		479,458		4.00		n/a		n/a
Banner Bank:
Total capital to risk- weighted assets	1,321,580		12.55		842,219		8.00		1,052,773		10.00
Tier 1 capital to risk- weighted assets	1,220,811		11.60		631,664		6.00		842,219		8.00
Tier 1 common equity to risk-weighted assets	1,220,811		11.60		473,748		4.50		684,303		6.50
Tier 1 capital to average leverage assets	1,220,811		10.45		467,330		4.00		584,163		5.00
Islanders Bank:
Total capital to risk- weighted assets	37,044		19.42		15,258		8.00		19,073		10.00
Tier 1 capital to risk- weighted assets	34,658		18.17		11,444		6.00		15,258		8.00
Tier 1 common equity to risk-weighted assets	34,658		18.17		8,583		4.50		12,397		6.50
Tier 1 capital to average leverage assets	34,658		11.66		11,887		4.00		14,859		5.00
December 31, 2018:
The Company—consolidated:
Total capital to risk-weighted assets	$	1,302,239	13.12	%	$	794,072	8.00	%	$	992,590	10.00	%
Tier 1 capital to risk-weighted assets	1,203,155		12.12		595,554		6.00		595,554		6.00
Tier 1 common equity to risk-weighted assets	1,067,155		10.75		446,665		4.50		n/a		n/a
Tier 1 capital to average leverage assets	1,203,155		10.98		438,379		4.00		n/a		n/a
Banner Bank:
Total capital to risk- weighted assets	1,217,173		12.50		778,766		8.00		973,457		10.00
Tier 1 capital to risk- weighted assets	1,120,523		11.51		584,074		6.00		778,766		8.00
Tier 1 common equity to risk-weighted assets	1,120,523		11.51		438,056		4.50		632,747		6.50
Tier 1 capital to average leverage assets	1,120,523		10.50		426,799		4.00		533,498		5.00
Islanders Bank:
Total capital to risk- weighted assets	34,567		18.26		15,142		8.00		18,928		10.00
Tier 1 capital to risk- weighted assets	32,200		17.01		11,357		6.00		15,142		8.00
Tier 1 common equity to risk-weighted assets	32,200		17.01		8,518		4.50		12,303		6.50
Tier 1 capital to average leverage assets	32,200		11.16		11,543		4.00		14,428		5.00

At December 31, 2019, Banner Corporation and the Banks each exceeded the requirements to be "well capitalized" and the fully phased-in capital conservation buffer requirement. There have been no conditions or events since December 31, 2019 that have materially adversely changed the Tier 1 or Tier 2 capital of the Company or the Banks.  However, events beyond the control of the Banks, such as weak or depressed economic conditions in areas where the Banks have most of their loans, could adversely affect future earnings and, consequently, the ability of the Banks to meet their respective capital requirements.  The Company may not declare or pay cash dividends on, or repurchase, any of its shares of common stock if the effect thereof would cause equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

Banner Corporation and the Banks are subject to minimum required ratios for common equity Tier 1 (“CET1”) capital, Tier 1 capital, total capital and the leverage ratio and a required capital conservation buffer over the required capital ratios.

Under capital regulations, the minimum capital ratios are: (1) a CET1 capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (3) a total risk-based capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio (the ratio of Tier 1 capital to average total consolidated assets) of 4.0%.  CET1 generally consists of common stock; retained earnings; accumulated other comprehensive income (“AOCI”) unless an institution elects to exclude AOCI from regulatory capital; and certain minority interests; all subject to applicable regulatory adjustments and deductions. Tier 1 capital generally consists of CET1 and noncumulative perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions plus an amount of the allowance for loan and lease losses up to 1.25% of assets. Total capital is the sum of Tier 1 and Tier 2 capital.

For purposes of determining risk-based capital, assets and certain off-balance sheet items are risk-weighted from 0% to 1,250%, depending on the risk characteristics of the asset or item. The regulations include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (up from 0%); and a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital.

In addition to the minimum CET1, Tier 1, leverage ratio and total capital ratios, Banner and each of the Banks must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in

order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.