Banner Corporation Reports Net Income of $46.9 Million, or $1.33 Per Diluted Share, for First Quarter 2021; Declares Quarterly Cash Dividend of $0.41 Per Share

WALLA WALLA, Wash., April 21, 2021 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $46.9 million, or $1.33 per diluted share, for the first quarter of 2021, a 20% increase compared to $39.0 million, or $1.10 per diluted share, for the preceding quarter and a 178% increase compared to $16.9 million, or $0.47 per diluted share, for the first quarter of 2020. Banner’s first quarter 2021 results include $8.0 million in recapture of provision for credit losses, compared to $21.7 million in provision for credit losses in the first quarter of 2020. The first quarter 2020 provision for credit losses was primarily the result of the impact of the COVID-19 pandemic. First quarter 2021 results also include $571,000 of merger and acquisition-related expenses, compared to $579,000 for the preceding quarter, and $1.1 million of merger and acquisition-related expenses for the first quarter of 2020.

Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable May 14, 2021, to common shareholders of record on May 5, 2021.

“Banner’s core operating performance during the first quarter reflects the continued execution of our super community bank strategy, even with the challenges of the pandemic,” said Mark Grescovich, President and CEO. “We benefited from continued strong mortgage banking fee revenue, core deposit growth and the branch consolidations we completed during the prior quarter. Overall, we achieved a return on average assets of 1.24% for the quarter. The unprecedented level of market liquidity along with our continued focus on building client relationships contributed to our core deposits increasing 36% compared to March 31, 2020.”

“Due to an improvement in forecasted economic conditions, a decline in loan balances other than guaranteed SBA Paycheck Protection Program (PPP) loans, we recorded an $8.0 million recapture to our provision for credit losses during the current quarter. This compares to a $601,000 recapture to our provision for credit losses during the preceding quarter and a $21.7 million provision for credit losses in the first quarter a year ago. Our allowance for credit losses - loans remains strong at 1.57% of total loans and 426% of non-performing loans at March 31, 2021, compared to 1.69% of total loans and 470% of non-performing loans at December 31, 2020,” said Grescovich. “Banner has provided PPP loans totaling nearly $1.56 billion to 13,210 businesses as of March 31, 2021. We continue to live by our core values: doing the right thing for our clients, communities, colleagues, company and shareholders, while providing a consistent and reliable source of capital through all economic cycles and changing events.”

At March 31, 2021, Banner Corporation had $16.12 billion in assets, $9.79 billion in net loans and $13.55 billion in deposits. Banner operates 155 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

  • SBA Paycheck Protection Program. The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. Under the initial PPP program, Banner funded 9,103 applications totaling $1.15 billion of loans in its service area. In January 2021, Banner began accepting and processing loan applications under the second PPP program enacted in December 2020. As of March 31, 2021, Banner had funded 4,107 applications totaling $410.8 million of loans under the second PPP program. As of March 31, 2021, Banner had received SBA forgiveness for 1,255 PPP loans totaling $259.9 million.
  • 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 clients for periods of up to six months. At March 31, 2021, Banner had 91 loans totaling $33.9 million still on deferral. Of the loans still on deferral, 79 loans totaling $25.7 million are mortgage loans operating under forbearance agreements. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance.
  • Allowance for Credit Losses. Banner recorded a recapture of provision for credit losses of $8.0 million for the first quarter of 2021. This compares to a $601,000 recapture of provision for credit losses recorded in the preceding quarter and a $21.7 million provision for credit losses recorded in the first quarter a year ago. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances. The provision for credit losses recorded in the first quarter a year ago reflected the deterioration in forecasted economic indicators and the economic outlook that existed at March 31, 2020 as a result of the COVID-19 pandemic.
  • Branch Operations, IT Changes and One-Time Expenses. Banner has been taking steps to resume more normal branch activities with specific guidelines in place to help safeguard the safety of our clients and personnel. To further the well-being of staff and clients, 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 $148,000 of related costs during the first quarter of 2021, compared to $333,000 of related costs in the preceding quarter and $239,000 of related costs in the first quarter a year ago.
  • Capital Management. At March 31, 2021, the tangible common shareholders’ equity to tangible assets* ratio was 7.80% and Banner’s capital was well in excess of all regulatory requirements. On December 21, 2020, Banner announced that its Board of Directors authorized the repurchase of up to 1,757,781 shares of Banner’s common stock, which is equivalent to approximately 5% of its common stock. During the current quarter, Banner repurchased 500,000 shares of its common stock at an average cost of $50.62 per share.

First Quarter 2021 Highlights

  • Revenues decreased to $141.9 million, compared to $144.9 million in the preceding quarter, and increased 3% when compared to $138.4 million in the first quarter a year ago.
  • Net interest income, before the recapture of provision for credit losses, decreased to $117.7 million in the first quarter of 2021, compared to $121.4 million in the preceding quarter and $119.3 million in the first quarter a year ago.
  • Net interest margin on a tax equivalent basis was 3.44%, compared to 3.64% in the preceding quarter and 4.25% in the first quarter a year ago.
  • Mortgage banking revenues increased 7% to $11.4 million, compared to $10.7 million in the preceding quarter, and 12% compared to $10.2 million in the first quarter a year ago.
  • Return on average assets was 1.24%, compared to 1.04% in the preceding quarter and 0.54% in the first quarter a year ago.
  • Net loans receivable increased to $9.79 billion at March 31, 2021, compared to $9.70 billion at December 31, 2020, and 7% when compared to $9.16 billion at March 31, 2020.
  • Non-performing assets increased slightly to $37.0 million, or 0.23% of total assets, at March 31, 2021, compared to $36.5 million, or 0.24% of total assets in the preceding quarter, and decreased from $46.1 million, or 0.36% of total assets, at March 31, 2020.
  • The allowance for credit losses - loans was $156.1 million, or 1.57% of total loans receivable, as of March 31, 2021, compared to $167.3 million, or 1.69% of total loans receivable as of December 31, 2020 and $130.5 million or 1.41% of total loans receivable as of March 31, 2020.
  • A $1.2 million recapture of provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $12.1 million as of March 31, 2021, compared to $13.3 million as of December 31, 2020 and $11.5 million as of March 31, 2020.
  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 8% to $12.64 billion at March 31, 2021, compared to $11.65 billion at December 31, 2020, and increased 36% compared to $9.28 billion a year ago. Core deposits represented 93% of total deposits at March 31, 2021.
  • Dividends to shareholders were $0.41 per share in the quarter ended March 31, 2021.
  • Common shareholders’ equity per share decreased 2% to $46.60 at March 31, 2021, compared to $47.39 at the preceding quarter end, and increased 2% from $45.63 a year ago.
  • Tangible common shareholders’ equity per share* decreased 2% to $35.29 at March 31, 2021, compared to $36.17 at the preceding quarter end, and increased 3% from $34.23 a year ago.

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

Significant Recent Initiatives and Events

On February 5, 2021, Islanders Bank, a wholly-owned subsidiary of Banner Corporation, was merged into Banner Bank. As a result, Banner recorded expenses associated with the merger of $571,000 during the quarter ended March 31, 2021.

On December 11, 2020, Banner Bank completed the consolidation of 15 branches and on September 25, 2020, Banner Bank completed the consolidation of six branches. As a result, Banner recorded expenses associated with these branch consolidations of $257,000 and $1.7 million, during the quarters ended March 31, 2021 and December 31, 2020, respectively. Client adoption of mobile and digital banking accelerated beginning in the second quarter of 2020 and has continued since, while physical branch transaction volume declined. Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic social distancing related restrictions have ended.

Income Statement Review

Net interest income, before the recapture of provision for credit losses, was $117.7 million in the first quarter of 2021, compared to $121.4 million in the preceding quarter and $119.3 million in the first quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.44% for the first quarter of 2021, a 20 basis-point decrease compared to 3.64% in the preceding quarter and an 81 basis-point decrease compared to 4.25% in the first quarter a year ago.

“Higher core deposit balances, resulting in a significant increase in low yielding short term investments, adversely affected our net interest margin during the quarter,” said Grescovich. “Additionally, the on-going low interest rate environment continues to put pressure on loan yields.” Acquisition accounting adjustments added five basis points to the net interest margin in both the current and preceding quarter and ten basis points in the first quarter a year ago. The total purchase discount for acquired loans was $13.9 million at March 31, 2021, compared to $16.1 million at December 31, 2020, and $22.2 million at March 31, 2020.

Average interest-earning asset yields decreased 23 basis points to 3.64% in the first quarter compared to 3.87% for the preceding quarter and decreased 105 basis points compared to 4.69% in the first quarter a year ago. Average loan yields decreased ten basis points to 4.43% compared to 4.53% in the preceding quarter and decreased 65 basis points compared to 5.08% in the first quarter a year ago. The decrease in average loan yields during the current quarter compared to the preceding quarter was primarily the result of lower rates on new originations and adjustable rate loans resetting lower as well as a decrease in interest recoveries and prepayment penalties. Loan discount accretion added seven basis points to average loan yields in both the first quarter of 2021 and in the preceding quarter and added 12 basis points in the first quarter a year ago. Deposit costs were 0.11% in the first quarter of 2021, a three basis-point decrease compared to the preceding quarter and a 24 basis-point decrease compared to the first quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020. The total cost of funds was 0.21% during the first quarter of 2021, a three basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the first quarter a year ago.

Banner recorded an $8.0 million recapture to its provision for credit losses in the current quarter, compared to a $601,000 recapture to its provision for credit losses in the prior quarter and a $21.7 million provision for credit losses in the first quarter a year ago. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances other than PPP loans. The provision for credit losses recorded in the first quarter a year ago reflected the deterioration in forecasted economic indicators and the economic outlook that existed at March 31, 2020 as a result of the COVID-19 pandemic.

Total non-interest income was $24.3 million in the first quarter of 2021, compared to $23.5 million in the preceding quarter and $19.2 million in the first quarter a year ago. Deposit fees and other service charges were $8.9 million in the first quarter of 2021, compared to $8.3 million in the preceding quarter and $9.8 million in the first quarter a year ago. The decrease in deposit fees and other service charges from the first 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 $11.4 million in the first quarter, compared to $10.7 million in the preceding quarter and $10.2 million in the first quarter of 2020. The higher mortgage banking revenue quarter-over-quarter primarily reflects higher gains on the sale of multifamily held-for-sale loans, partially offset by a decrease in the gain on sale margin on one- to four-family held-for-sale loans. The increases compared to the first quarter of 2020 were primarily due to increased production of one- to four-family held-for-sale loans, primarily due to increased refinance activity along with higher gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 54% of one- to four-family mortgage loan originations in the first quarter of 2021, compared to 51% in the prior quarter and 54% in the first quarter of 2020.

Banner’s first quarter 2021 results included a $59,000 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, and a $485,000 net gain on the sale of securities. In the preceding quarter, results included a $1.7 million net gain for fair value adjustments and a $197,000 net gain on the sale of securities. In the first quarter a year ago, results included a $4.6 million net loss for fair value adjustments and a $78,000 net gain on the sale of securities.

Banner’s total revenue decreased 2% to $141.9 million for the first quarter of 2021, compared to $144.9 million in the preceding quarter, and increased 3% compared to $138.4 million in the first quarter a year ago. Adjusted revenue* (the total of net interest income before recapture of 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 $141.4 million in the first quarter of 2021, compared to $143.0 million in the preceding quarter and $142.9 million in the first quarter of 2020.

Total non-interest expense was $92.3 million in the first quarter of 2021, compared to $96.8 million in the preceding quarter and $95.2 million in the first quarter of 2020. The decrease in non-interest expense in the current quarter includes a $1.2 million recapture of provision for credit losses - unfunded loan commitments as compared to a $1.2 million provision for the prior quarter and a $1.7 million provision in the first quarter a year ago. The decrease in non-interest expense for the current quarter compared to the prior quarter also reflects a $2.5 million accrual recorded in the prior quarter related to pending litigation as well as a $1.6 million decrease in advertising and marketing expenses and a $1.3 million decrease in occupancy and equipment expense due to branch consolidations expenses recorded in the prior quarter. The year-over-year quarterly decrease in non-interest expense also reflects increased capitalized loan origination costs, primarily related to the origination of PPP loans during the current quarter. The decreases in non-interest expense for both the current quarter compared to the prior quarter and the first quarter a year ago were partially offset by increased salary and employee benefits expense. These increases include $1.3 million of severance expense related to a reduction in staffing and a $1.2 million adjustment recorded in the current quarter to increase the liability related to deferred compensation plans. Merger and acquisition-related expenses were $571,000 for the first quarter of 2021, compared to $579,000 for the preceding quarter and $1.1 million in the first quarter a year ago. Banner’s efficiency ratio was 65.04% for the current quarter, compared to 66.76% in the preceding quarter and 68.76% in the year ago quarter. Banner’s adjusted efficiency ratio* was 63.85% for the current quarter, compared to 64.31% in the preceding quarter and 62.26% in the year ago quarter.

For the first quarter of 2021, Banner had $10.8 million in state and federal income tax expense for an effective tax rate of 18.7%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 7% to $16.12 billion at March 31, 2021, compared to $15.03 billion at December 31, 2020, and increased 26% when compared to $12.78 billion at March 31, 2020. The total of securities and interest-bearing deposits held at other banks was $4.81 billion at March 31, 2021, compared to $3.69 billion at December 31, 2020 and $2.15 billion at March 31, 2020. The average effective duration of Banner's securities portfolio was approximately 5.2 years at March 31, 2021, compared to 2.9 years at March 31, 2020.

Net loans receivable increased 1% to $9.79 billion at March 31, 2021, compared to $9.70 billion at December 31, 2020, and increased 7% when compared to $9.16 billion at March 31, 2020. The increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020 and the first quarter of 2021, partially offset by decreased loan demand and lower line usage as a result of the COVID-19 pandemic. Commercial real estate and multifamily real estate loans increased slightly to $4.05 billion at March 31, 2021, compared to $4.03 billion at December 31, 2020, and increased 1% compared to $4.02 billion a year ago. Commercial business loans increased 6% to $3.09 billion at March 31, 2021 compared to $2.92 billion at December 31, 2020, and increased 43% compared to $2.17 billion a year ago, primarily due to SBA PPP loans. Agricultural business loans decreased to $262.4 million at March 31, 2021, compared to $299.9 million three months earlier and $330.3 million a year ago. Total construction, land and land development loans were $1.31 billion at March 31, 2021, a 2% increase from $1.29 billion at December 31, 2020, and a 7% increase compared to $1.22 billion a year earlier. Consumer loans decreased to $570.7 million at March 31, 2021, compared to $605.8 million at December 31, 2020, and $661.8 million a year ago. One- to four-family loans decreased to $655.6 million at March 31, 2021, reflecting held for investment loans being refinanced and sold as held for sale loans, compared to $717.9 million at December 31, 2020, and $881.4 million a year ago.

Loans held for sale were $135.3 million at March 31, 2021, compared to $243.8 million at December 31, 2020, and $182.4 million at March 31, 2020. The volume of one- to four- family residential mortgage loans sold was $300.3 million in the current quarter, compared to $356.6 million in the preceding quarter and $204.0 million in the first quarter a year ago. During the first quarter of 2021, Banner sold $107.7 million in multifamily loans compared to $10.4 million in the preceding quarter and $119.7 million in the first quarter a year ago.

Total deposits increased 8% to $13.55 billion at March 31, 2021, compared to $12.57 billion at December 31, 2020, and increased 30% when compared to $10.45 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic. Non-interest-bearing account balances increased 9% to $5.99 billion at March 31, 2021, compared to $5.49 billion at December 31, 2020, and increased 46% compared to $4.11 billion a year ago. Core deposits increased 8% from the prior quarter and increased 36% compared to a year ago and represented 93% of total deposits at both March 31, 2021 and December 31, 2020. Certificates of deposit decreased to $907.0 million at March 31, 2021, compared to $915.3 million at December 31, 2020, and decreased 22% compared to $1.17 billion a year earlier. Banner had no brokered deposits at March 31, 2021 or December 31, 2020, compared to $251.0 million a year ago. FHLB borrowings totaled $100.0 million at March 31, 2021, $150.0 million at December 31, 2020, and $247.0 million a year ago.

At March 31, 2021, total common shareholders’ equity was $1.62 billion, or 10.04% of assets, compared to $1.67 billion or 11.09% of assets at December 31, 2020, and $1.60 billion or 12.53% of assets a year ago. The decrease in total common shareholders’ equity from the prior quarter reflects the stock repurchased during the current quarter as discussed above. At March 31, 2021, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.23 billion, or 7.80% of tangible assets*, compared to $1.27 billion, or 8.69% of tangible assets, at December 31, 2020, and $1.20 billion, or 9.70% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $35.29 at March 31, 2021, compared to $34.23 per share a year ago.

Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At March 31, 2021, Banner's common equity Tier 1 capital ratio was 11.24%, its Tier 1 leverage capital to average assets ratio was 9.10%, and its total capital to risk-weighted assets ratio was 14.74%.

Credit Quality

The allowance for credit losses - loans was $156.1 million at March 31, 2021, or 1.57% of total loans receivable outstanding and 426% of non-performing loans, compared to $167.3 million at December 31, 2020, or 1.69% of total loans receivable outstanding and 470% of non-performing loans, and $130.5 million at March 31, 2020, or 1.41% of total loans receivable outstanding and 299% 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 March 31, 2021, compared to $13.3 million at December 31, 2020 and $11.5 million at March 31, 2020. Net loan charge-offs totaled $3.2 million in the first quarter of 2021, compared to net loan charge-offs of $93,000 in the preceding quarter and $404,000 of net loan recoveries in the first quarter a year ago. Banner recorded an $8.0 million recapture of provision for credit losses in the current quarter, compared to a $601,000 recapture of provision for credit losses in the prior quarter and a $21.7 million provision for loan losses in the year ago quarter. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances other than PPP loans. The provision for credit losses recorded in the first quarter a year ago reflected the deterioration in forecasted economic indicators and the economic outlook that existed at March 31, 2020 as a result of the COVID-19 pandemic. Non-performing loans were $36.6 million at March 31, 2021, compared to $35.6 million at December 31, 2020, and $43.7 million a year ago. Real estate owned and other repossessed assets were $377,000 at March 31, 2021, compared to $867,000 at December 31, 2020, and $2.4 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 were included in the determination of fair value, and as a result, no allowance for credit losses was recorded for loans acquired from acquisitions prior to January 1, 2020. At March 31, 2021, the total purchase discount for acquired loans was $13.9 million.

Banner’s total substandard loans were $311.6 million at March 31, 2021, compared to $340.2 million at December 31, 2020, and $126.1 million a year ago. The quarter over quarter decrease reflects the payoff of substandard loans as well as risk rating upgrades as certain industries impacted by the COVID-19 pandemic have begun to stabilize.

Banner’s total non-performing assets were $37.0 million, or 0.23% of total assets, at March 31, 2021, compared to $36.5 million, or 0.24% of total assets, at December 31, 2020, and $46.1 million, or 0.36% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, April 22, 2021, at 8:00 a.m. PDT, to discuss its first 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 10153346, or at www.bannerbank.com.

About the Company

Banner Corporation is a $16.12 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

The COVID-19, pandemic is adversely affecting us, our clients, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on client behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; 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.

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





RESULTS OF OPERATIONS Quarters Ended
(in thousands except shares and per share data) Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
       
INTEREST INCOME:      
Loans receivable $108,924  $115,545  $118,926 
Mortgage-backed securities 9,371  7,438  9,137 
Securities and cash equivalents 6,226  6,170  3,602 
  124,521  129,153  131,665 
INTEREST EXPENSE:      
Deposits 3,609  4,392  8,750 
Federal Home Loan Bank advances 934  987  2,064 
Other borrowings 109  121  116 
Junior subordinated debentures and subordinated notes 2,208  2,216  1,477 
  6,860  7,716  12,407 
Net interest income before (recapture)/provision for credit losses 117,661  121,437  119,258 
(RECAPTURE)/PROVISION FOR CREDIT LOSSES (8,031) (601) 21,748 
Net interest income 125,692  122,038  97,510 
NON-INTEREST INCOME:      
Deposit fees and other service charges 8,939  8,293  9,803 
Mortgage banking operations 11,440  10,690  10,191 
Bank-owned life insurance 1,307  1,319  1,050 
Miscellaneous 2,042  1,306  2,639 
  23,728  21,608  23,683 
Net gain on sale of securities 485  197  78 
Net change in valuation of financial instruments carried at fair value 59  1,704  (4,596)
Total non-interest income 24,272  23,509  19,165 
NON-INTEREST EXPENSE:      
Salary and employee benefits 64,819  60,906  59,908 
Less capitalized loan origination costs (9,696) (9,415) (5,806)
Occupancy and equipment 12,989  14,248  13,107 
Information / computer data services 6,203  6,402  5,810 
Payment and card processing services 4,326  3,960  4,240 
Professional and legal expenses 3,328  5,643  1,919 
Advertising and marketing 1,263  2,828  1,827 
Deposit insurance expense 1,533  1,548  1,635 
State/municipal business and use taxes 1,065  1,071  984 
Real estate operations (242) (283) 100 
Amortization of core deposit intangibles 1,711  1,865  2,001 
(Recapture)/provision for credit losses - unfunded loan commitments (1,220) 1,203  1,722 
Miscellaneous 5,509  5,871  6,357 
  91,588  95,847  93,804 
COVID-19 expenses 148  333  239 
Merger and acquisition-related expenses 571  579  1,142 
Total non-interest expense 92,307  96,759  95,185 
Income before provision for income taxes 57,657  48,788  21,490 
PROVISION FOR INCOME TAXES 10,802  9,831  4,608 
NET INCOME $46,855  $38,957  $16,882 
Earnings per share available to common shareholders:      
Basic $1.34  $1.11  $0.48 
Diluted $1.33  $1.10  $0.47 
Cumulative dividends declared per common share $0.41  $0.41  $0.41 
Weighted average common shares outstanding:      
Basic 34,973,383  35,200,769  35,463,541 
Diluted 35,303,483  35,425,810  35,640,463 
(Decrease) increase in common shares outstanding (423,857) 632  (649,117)


FINANCIAL  CONDITION       Percentage Change
(in thousands except shares and per share data) Mar 31, 2021 Dec 31, 2020 Mar 31, 2020 Prior Qtr Prior Yr Qtr
           
ASSETS          
Cash and due from banks $296,184  $311,899  $211,013  (5.0)% 40.4%
Interest-bearing deposits 1,353,743  922,284  83,988  46.8% nm 
Total cash and cash equivalents 1,649,927  1,234,183  295,001  33.7% 459.3%
Securities - trading 25,039  24,980  21,040  0.2% 19.0%
Securities - available for sale 2,989,760  2,322,593  1,608,224  28.7% 85.9%
Securities - held to maturity 441,857  421,713  437,846  4.8% 0.9%
Total securities 3,456,656  2,769,286  2,067,110  24.8% 67.2%
Federal Home Loan Bank stock 14,001  16,358  20,247  (14.4)% (30.8)%
Loans held for sale 135,263  243,795  182,428  (44.5)% (25.9)%
Loans receivable 9,947,697  9,870,982  9,285,744  0.8% 7.1%
Allowance for credit losses - loans (156,054) (167,279) (130,488) (6.7)% 19.6%
Net loans receivable 9,791,643  9,703,703  9,155,256  0.9% 7.0%
Accrued interest receivable 49,214  46,617  40,732  5.6% 20.8%
Real estate owned held for sale, net 340  816  2,402  (58.3)% (85.8)%
Property and equipment, net 161,268  164,556  175,235  (2.0)% (8.0)%
Goodwill 373,121  373,121  373,121  % %
Other intangibles, net 19,715  21,426  27,157  (8.0)% (27.4)%
Bank-owned life insurance 191,388  191,830  193,140  (0.2)% (0.9)%
Other assets 277,256  265,932  249,121  4.3% 11.3%
Total assets $16,119,792  $15,031,623  $12,780,950  7.2% 26.1%
LIABILITIES          
Deposits:          
Non-interest-bearing $5,994,693  $5,492,924  $4,107,262  9.1% 46.0%
Interest-bearing transaction and savings accounts 6,647,196  6,159,052  5,175,969  7.9% 28.4%
Interest-bearing certificates 906,978  915,320  1,166,306  (0.9)% (22.2)%
Total deposits 13,548,867  12,567,296  10,449,537  7.8% 29.7%
Advances from Federal Home Loan Bank 100,000  150,000  247,000  (33.3)% (59.5)%
Customer repurchase agreements and other borrowings 216,260  184,785  128,764  17.0% 68.0%
Subordinated notes, net 98,290  98,201    0.1% nm 
Junior subordinated debentures at fair value 117,248  116,974  99,795  0.2% 17.5%
Accrued expenses and other liabilities 373,685  202,643  208,753  84.4% 79.0%
Deferred compensation 46,625  45,460  45,401  2.6% 2.7%
Total liabilities 14,500,975  13,365,359  11,179,250  8.5% 29.7%
SHAREHOLDERS’ EQUITY          
Common stock 1,326,269  1,349,879  1,343,699  (1.7)% (1.3)%
Retained earnings 279,582  247,316  177,922  13.0% 57.1%
Other components of shareholders’ equity 12,966  69,069  80,079  (81.2)% (83.8)%
Total shareholders’ equity 1,618,817  1,666,264  1,601,700  (2.8)% 1.1%
Total liabilities and shareholders’ equity $16,119,792  $15,031,623  $12,780,950  7.2% 26.1%
Common Shares Issued:          
Shares outstanding at end of period 34,735,343  35,159,200  35,102,459     
Common shareholders’ equity per share (1) $46.60  $47.39  $45.63     
Common shareholders’ tangible equity per share (1) (2) $35.29  $36.17  $34.23     
Common shareholders’ tangible equity to tangible assets (2) 7.80% 8.69% 9.70%    
Consolidated Tier 1 leverage capital ratio 9.10% 9.50% 10.45%    


(1)Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2)Common shareholders’ tangible equity excludes goodwill and other intangible assets.  Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
        Percentage Change
LOANS Mar 31, 2021 Dec 31, 2020 Mar 31, 2020 Prior Qtr Prior Yr Qtr
           
Commercial real estate:          
Owner-occupied $1,045,656  $1,076,467  $1,024,089  (2.9)% 2.1%
Investment properties 1,931,805  1,955,684  2,007,537  (1.2)% (3.8)%
Small balance CRE 639,330  573,849  591,783  11.4% 8.0%
Multifamily real estate 433,775  428,223  400,206  1.3% 8.4%
Construction, land and land development:          
Commercial construction 199,037  228,937  205,476  (13.1)% (3.1)%
Multifamily construction 305,694  305,527  250,410  0.1% 22.1%
One- to four-family construction 542,840  507,810  534,956  6.9% 1.5%
Land and land development 266,730  248,915  232,506  7.2% 14.7%
Commercial business:          
Commercial business 2,376,594  2,178,461  1,357,817  9.1% 75.0%
Small business scored 717,502  743,451  807,539  (3.5)% (11.1)%
Agricultural business, including secured by farmland 262,410  299,949  330,257  (12.5)% (20.5)%
One- to four-family residential 655,627  717,939  881,387  (8.7)% (25.6)%
Consumer:          
Consumer—home equity revolving lines of credit 466,132  491,812  521,618  (5.2)% (10.6)%
Consumer—other 104,565  113,958  140,163  (8.2)% (25.4)%
Total loans receivable $9,947,697  $9,870,982  $9,285,744  0.8% 7.1%
Restructured loans performing under their restructured terms $6,424  $6,673  $6,423     
Loans 30 - 89 days past due and on accrual $19,233  $12,291  $39,974     
Total delinquent loans (including loans on non-accrual), net $42,444  $36,131  $61,101     
Total delinquent loans  /  Total loans receivable 0.43% 0.37% 0.66%    


LOANS BY GEOGRAPHIC LOCATION         Percentage Change
  Mar 31, 2021 Dec 31, 2020 Mar 31, 2020 Prior Qtr Prior Yr Qtr
  Amount Percentage Amount Amount    
             
Washington $4,683,600  47.1% $4,647,553  $4,350,273  0.8% 7.7%
California 2,320,384  23.3% 2,279,749  2,140,895  1.8% 8.4%
Oregon 1,801,104  18.1% 1,792,156  1,664,652  0.5% 8.2%
Idaho 539,061  5.4% 537,996  524,663  0.2% 2.7%
Utah 92,399  0.9% 80,704  52,747  14.5% 75.2%
Other 511,149  5.2% 532,824  552,514  (4.1)% (7.5)%
Total loans receivable $9,947,697  100.0% $9,870,982  $9,285,744  0.8% 7.1%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending March 31, 2021, December 31, 2020, and March 31, 2020 (in thousands).

LOAN ORIGINATIONSQuarters Ended
 Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Commercial real estate$199,294  $93,838  $76,359 
Multifamily real estate13,271  7,900  10,171 
Construction and land451,545  515,280  369,613 
Commercial business:     
Commercial business168,049  133,112  199,873 
SBA PPP428,180     
Agricultural business27,267  11,552  31,261 
One-to four-family residential64,286  28,402  31,041 
Consumer131,671  97,416  67,357 
Total loan originations (excluding loans held for sale)$1,483,563  $887,500  $785,675 


ADDITIONAL FINANCIAL INFORMATION      
(dollars in thousands)      
    Quarters Ended
CHANGE IN THE Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
ALLOWANCE FOR CREDIT LOSSES - LOANS      
Balance, beginning of period $167,279  $167,965  $100,559 
Beginning balance adjustment for adoption of ASC 326     7,812 
(Recapture)/provision for credit losses - loans (8,035) (593) 21,713 
Recoveries of loans previously charged off:      
Commercial real estate 24  31  167 
Construction and land 100     
One- to four-family real estate 113  194  148 
Commercial business 979  2,444  205 
Agricultural business, including secured by farmland   51  1,750 
Consumer 296  90  96 
  1,512  2,810  2,366 
Loans charged off:      
Commercial real estate (3,763) (1,375) (100)
Multifamily real estate     (66)
One- to four-family real estate     (64)
Commercial business (789) (1,019) (1,384)
Agricultural business, including secured by farmland   (37)  
Consumer (150) (472) (348)
  (4,702) (2,903) (1,962)
Net charge-offs (3,190) (93) 404 
Balance, end of period $156,054  $167,279  $130,488 
Net charge-offs / Average loans receivable (0.032)% (0.001)% 0.004%


       
ALLOCATION OF      
ALLOWANCE FOR CREDIT LOSSES - LOANS Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Specific or allocated credit loss allowance:      
Commercial real estate $59,411  $57,791  $29,339 
Multifamily real estate 4,367  3,893  2,805 
Construction and land 36,440  41,295  34,217 
One- to four-family real estate 7,988  9,913  11,884 
Commercial business 31,411  35,007  31,648 
Agricultural business, including secured by farmland 4,617  4,914  4,513 
Consumer 11,820  14,466  16,082 
Total allowance for credit losses - loans $156,054  $167,279  $130,488 
Allowance for credit losses - loans / Total loans receivable 1.57% 1.69% 1.41%
Allowance for credit losses - loans / Non-performing loans 426% 470% 299%


    Quarters Ended
CHANGE IN THE Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS      
Balance, beginning of period $13,297  $12,094  $2,716 
Beginning balance adjustment for adoption of ASC 326     7,022 
(Recapture)/provision for credit losses - unfunded loan commitments (1,220) 1,203  1,722 
Balance, end of period $12,077  $13,297  $11,460 


ADDITIONAL FINANCIAL INFORMATION     
(dollars in thousands)     
 Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
NON-PERFORMING ASSETS     
Loans on non-accrual status:     
Secured by real estate:     
Commercial$21,615  $18,199  $8,512 
Construction and land986  936  1,393 
One- to four-family4,456  3,556  3,045 
Commercial business4,194  5,407  25,027 
Agricultural business, including secured by farmland1,536  1,743  495 
Consumer2,244  2,719  1,812 
 35,031  32,560  40,284 
Loans more than 90 days delinquent, still on accrual:     
Secured by real estate:     
Commercial    24 
Construction and land    1,407 
One- to four-family1,524  1,899  1,089 
Commercial business37  1,025  77 
Agricultural business, including secured by farmland    461 
Consumer  130  320 
 1,561  3,054  3,378 
Total non-performing loans36,592  35,614  43,662 
Real estate owned (REO)340  816  2,402 
Other repossessed assets37  51  47 
Total non-performing assets$36,969  $36,481  $46,111 
Total non-performing assets to total assets0.23% 0.24% 0.36%


 Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
LOANS BY CREDIT RISK RATING     
      
Pass$9,584,429  $9,494,147  $9,095,264 
Special Mention51,692  36,598  64,406 
Substandard311,576  340,237  126,074 
Total$9,947,697  $9,870,982  $9,285,744 


 Quarters Ended
REAL ESTATE OWNEDMar 31, 2021 Dec 31, 2020 Mar 31, 2020
Balance, beginning of period$816  $1,795  $814 
Additions from loan foreclosures    1,588 
Proceeds from dispositions of REO(783) (1,555)  
Gain on sale of REO307  603   
Valuation adjustments in the period  (27)  
Balance, end of period$340  $816  $2,402 


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)           
           
DEPOSIT COMPOSITION       Percentage Change
  Mar 31, 2021 Dec 31, 2020 Mar 31, 2020 Prior Qtr Prior Yr Qtr
           
Non-interest-bearing $5,994,693  $5,492,924  $4,107,262  9.1% 46.0%
Interest-bearing checking 1,722,085  1,569,435  1,331,860  9.7% 29.3%
Regular savings accounts 2,597,731  2,398,482  1,997,265  8.3% 30.1%
Money market accounts 2,327,380  2,191,135  1,846,844  6.2% 26.0%
Total interest-bearing transaction and savings accounts 6,647,196  6,159,052  5,175,969  7.9% 28.4%
Total core deposits 12,641,889  11,651,976  9,283,231  8.5% 36.2%
Interest-bearing certificates 906,978  915,320  1,166,306  (0.9)% (22.2)%
Total deposits $13,548,867  $12,567,296  $10,449,537  7.8% 29.7%


GEOGRAPHIC CONCENTRATION OF DEPOSITS          
  Mar 31, 2021 Dec 31, 2020 Mar 31, 2020 Percentage Change
  Amount Percentage Amount Amount Prior Qtr Prior Yr Qtr
Washington $7,504,389  55.4% $7,058,404  $6,037,864  6.3% 24.3%
Oregon 2,929,027  21.6% 2,604,908  2,093,738  12.4% 39.9%
California 2,401,299  17.7% 2,237,949  1,828,064  7.3% 31.4%
Idaho 714,152  5.3% 666,035  489,871  7.2% 45.8%
Total deposits $13,548,867  100.0% $12,567,296  $10,449,537  7.8% 29.7%


INCLUDED IN TOTAL DEPOSITS Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Public non-interest-bearing accounts $151,850  $175,352  $115,354 
Public interest-bearing transaction & savings accounts 169,192  127,523  130,958 
Public interest-bearing certificates 51,021  59,127  48,232 
Total public deposits $372,063  $362,002  $294,544 
Total brokered deposits $  $  $250,977 


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 MARCH 31, 2021 Amount Ratio Amount Ratio Amount Ratio
             
Banner Corporation-consolidated:            
Total capital to risk-weighted assets $1,594,230  14.74% $865,281  8.00% $1,081,602  10.00%
Tier 1 capital to risk-weighted assets 1,358,958  12.56% 648,961  6.00% 648,961  6.00%
Tier 1 leverage capital to average assets 1,358,958  9.10% 597,434  4.00% n/a  n/a 
Common equity tier 1 capital to risk-weighted assets 1,215,458  11.24% 486,721  4.50% n/a  n/a 
Banner Bank:            
Total capital to risk-weighted assets 1,473,846  13.63% 865,096  8.00% 1,081,370  10.00%
Tier 1 capital to risk-weighted assets 1,338,602  12.38% 648,822  6.00% 865,096  8.00%
Tier 1 leverage capital to average assets 1,338,602  8.95% 598,565  4.00% 748,207  5.00%
Common equity tier 1 capital to risk-weighted assets 1,338,602  12.38% 486,616  4.50% 702,890  6.50%


ADDITIONAL FINANCIAL INFORMATION                 
(dollars in thousands)                 
(rates / ratios annualized)                 
ANALYSIS OF NET INTEREST SPREADQuarters Ended
 March 31, 2021 December 31, 2020 March 31, 2020
 Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3)
Interest-earning assets:                 
Held for sale loans$119,341  $925  3.14% $110,414  $976  3.52% $152,627  $1,520  4.01%
Mortgage loans7,144,770  80,580  4.57% 7,251,101  84,634  4.64% 7,310,115  93,061  5.12%
Commercial/agricultural loans2,691,554  26,711  4.02% 2,752,352  29,145  4.21% 1,884,006  22,959  4.90%
Consumer and other loans127,469  1,947  6.19% 135,498  2,057  6.04% 163,098  2,595  6.40%
Total loans(1)(3)10,083,134  110,163  4.43% 10,249,365  116,812  4.53% 9,509,846  120,135  5.08%
Mortgage-backed securities1,953,820  9,472  1.97% 1,429,635  7,536  2.10% 1,354,585  9,236  2.74%
Other securities1,048,856  6,687  2.59% 975,166  6,634  2.71% 458,116  3,310  2.91%
Equity securities1,742    % 234,822  64  0.11%     %
Interest-bearing deposits with banks1,032,138  262  0.10% 611,234  219  0.14% 92,659  393  1.71%
FHLB stock15,952  161  4.09% 16,361  162  3.94% 26,522  322  4.88%
Total investment securities (3)4,052,508  16,582  1.66% 3,267,218  14,615  1.78% 1,931,882  13,261  2.76%
Total interest-earning assets14,135,642  126,745  3.64% 13,516,583  131,427  3.87% 11,441,728  133,396  4.69%
Non-interest-earning assets1,237,281      1,349,055      1,193,256     
Total assets$15,372,923      $14,865,638      $12,634,984     
Deposits:                 
Interest-bearing checking accounts$1,616,824  315  0.08% $1,483,183  315  0.08% $1,266,647  469  0.15%
Savings accounts2,486,820  521  0.08% 2,375,015  691  0.12% 2,039,857  1,755  0.35%
Money market accounts2,242,748  775  0.14% 2,165,960  1,047  0.19% 1,743,118  2,439  0.56%
Certificates of deposit913,053  1,998  0.89% 916,286  2,339  1.02% 1,124,994  4,087  1.46%
Total interest-bearing deposits7,259,445  3,609  0.20% 6,940,444  4,392  0.25% 6,174,616  8,750  0.57%
Non-interest-bearing deposits5,663,820    % 5,499,240    % 3,965,380    %
Total deposits12,923,265  3,609  0.11% 12,439,684  4,392  0.14% 10,139,996  8,750  0.35%
Other interest-bearing liabilities:                 
FHLB advances144,444  934  2.62% 150,000  987  2.62% 405,429  2,064  2.05%
Other borrowings202,930  109  0.22% 187,560  121  0.26% 124,771  116  0.37%
Junior subordinated debentures and subordinated notes247,944  2,208  3.61% 247,944  2,216  3.56% 147,944  1,477  4.02%
Total borrowings595,318  3,251  2.21% 585,504  3,324  2.26% 678,144  3,657  2.17%
Total funding liabilities13,518,583  6,860  0.21% 13,025,188  7,716  0.24% 10,818,140  12,407  0.46%
Other non-interest-bearing liabilities(2)207,560      195,965      212,162     
Total liabilities13,726,143      13,221,153      11,030,302     
Shareholders’ equity1,646,780      1,644,485      1,604,682     
Total liabilities and shareholders’ equity$15,372,923      $14,865,638      $12,634,984     
Net interest income/rate spread (tax equivalent)  $119,885  3.43%   $123,711  3.63%   $120,989  4.23%
Net interest margin (tax equivalent)    3.44%     3.64%     4.25%
Reconciliation to reported net interest income:                 
Adjustments for taxable equivalent basis  (2,224)     (2,274)     (1,731)  
Net interest income and margin, as reported  $117,661  3.38%   $121,437  3.57%   $119,258  4.19%
Additional Key Financial Ratios:                 
Return on average assets    1.24%     1.04%     0.54%
Return on average equity    11.54%     9.42%     4.23%
Average equity/average assets    10.71%     11.06%     12.70%
Average interest-earning assets/average interest-bearing liabilities    179.96%     179.60%     166.97%
Average interest-earning assets/average funding liabilities    104.56%     103.77%     105.76%
Non-interest income/average assets    0.64%     0.63%     0.61%
Non-interest expense/average assets    2.44%     2.59%     3.03%
Efficiency ratio(4)    65.04%     66.76%     68.76%
Adjusted efficiency ratio(5)    63.85%     64.31%     62.26%

(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 $1.2 million, $1.3 million, and $1.2 million for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $985,000, $1.0 million, and $522,000 for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION     
(dollars in thousands)     
      
* Non-GAAP Financial Measures     
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
      
ADJUSTED REVENUEQuarters Ended
 Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Net interest income before (recapture)/provision for credit losses$117,661  $121,437  $119,258 
Total non-interest income24,272  23,509  19,165 
Total GAAP revenue141,933  144,946  138,423 
Exclude net gain on sale of securities(485) (197) (78)
Exclude net change in valuation of financial instruments carried at fair value(59) (1,704) 4,596 
Adjusted revenue (non-GAAP)$141,389  $143,045  $142,941 


ADJUSTED EARNINGS Quarters Ended
  Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Net income (GAAP) $46,855  $38,957  $16,882 
Exclude net gain on sale of securities (485) (197) (78)
Exclude net change in valuation of financial instruments carried at fair value (59) (1,704) 4,596 
Exclude merger and acquisition-related expenses 571  579  1,142 
Exclude COVID-19 expenses 148  333  239 
Exclude related net tax (benefit) expense (42) 237  (1,405)
Total adjusted earnings (non-GAAP) $46,988  $38,205  $21,376 
       
Diluted earnings per share (GAAP) $1.33  $1.10  $0.47 
Diluted adjusted earnings per share (non-GAAP) $1.33  $1.08  $0.60 


ADDITIONAL FINANCIAL INFORMATION      
(dollars in thousands)      
ADJUSTED EFFICIENCY RATIO Quarters Ended
  Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Non-interest expense (GAAP) $92,307  $96,759  $95,185 
Exclude merger and acquisition-related expenses (571) (579) (1,142)
Exclude COVID-19 expenses (148) (333) (239)
Exclude CDI amortization (1,711) (1,865) (2,001)
Exclude state/municipal tax expense (1,065) (1,071) (984)
Exclude REO operations 242  283  (100)
Exclude recapture/(provision) for credit losses - unfunded loan commitments 1,220  (1,203) (1,722)
Adjusted non-interest expense (non-GAAP) $90,274  $91,991  $88,997 
       
Net interest income before (recapture)/provision for credit losses (GAAP) $117,661  $121,437  $119,258 
Non-interest income (GAAP) 24,272  23,509  19,165 
Total revenue 141,933  144,946  138,423 
Exclude net gain on sale of securities (485) (197) (78)
Exclude net change in valuation of financial instruments carried at fair value (59) (1,704) 4,596 
Adjusted revenue (non-GAAP) $141,389  $143,045  $142,941 
       
Efficiency ratio (GAAP) 65.04% 66.76% 68.76%
Adjusted efficiency ratio (non-GAAP) 63.85% 64.31% 62.26%


TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS Mar 31, 2021 Dec 31, 2020 Mar 31, 2020
Shareholders’ equity (GAAP) $1,618,817  $1,666,264  $1,601,700 
Exclude goodwill and other intangible assets, net 392,836  394,547  400,278 
Tangible common shareholders’ equity (non-GAAP) $1,225,981  $1,271,717  $1,201,422 
       
Total assets (GAAP) $16,119,792  $15,031,623  $12,780,950 
Exclude goodwill and other intangible assets, net 392,836  394,547  400,278 
Total tangible assets (non-GAAP) $15,726,956  $14,637,076  $12,380,672 
Common shareholders’ equity to total assets (GAAP) 10.04% 11.09% 12.53%
Tangible common shareholders’ equity to tangible assets (non-GAAP) 7.80% 8.69% 9.70%
       
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE      
Tangible common shareholders’ equity (non-GAAP) $1,225,981  $1,271,717  $1,201,422 
Common shares outstanding at end of period 34,735,343  35,159,200  35,102,459 
Common shareholders’ equity (book value) per share (GAAP) $46.60  $47.39  $45.63 
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $35.29  $36.17  $34.23 


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