Banner Corporation Reports Net Income of $23.5 Million, or $0.67 Per Diluted Share, in Second Quarter 2020; Declares Quarterly Cash Dividend of $0.41 Per Share; Provides Update to Pandemic Relief and Community Support Actions

Nachrichtenquelle: globenewswire
22.07.2020, 22:00  |  110   |   |   

WALLA WALLA, Wash., July 22, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $23.5 million, or $0.67 per diluted share, for the second quarter 2020, compared to $16.9 million, or $0.47 per diluted share, in the preceding quarter and $39.7 million, or $1.14 per diluted share, in the second quarter of 2019. Banner's second quarter earnings reflect the continuing impact of the COVID-19 pandemic in all the western states that Banner operates. Second quarter of 2020 results also include $336,000 of acquisition-related expenses, compared to $1.1 million of acquisition-related expenses in the preceding quarter and $301,000 in the second quarter of 2019. In the first six months of 2020, net income was $40.4 million, or $1.14 per diluted share, compared to $73.0 million, or $2.09 per diluted share, in the first six months a year ago. The results for the first six months of 2020 include $1.5 million of acquisition-related expenses, compared to $2.4 million of acquisition-related expenses in the first six months of 2019.

Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable August 13, 2020, to common shareholders of record on August 4, 2020.

“With strong loan and deposit growth, Banner’s core operating performance generated solid revenue growth with increases in both net interest income and non-interest income compared to both the preceding quarter and the same quarter last year. However; second quarter earnings were impacted by a number of items, including the anticipated impact of the COVID-19 pandemic on the economy, and subsequently, the increase in our allowance for credit losses,” said Mark Grescovich, President and CEO. “To provide support for our clients, we have made available several assistance programs. Banner has provided SBA paycheck protection funds totaling nearly $1.12 billion for 8,655 businesses and provided deferred payments or waived interest on 3,314 loans totaling $1.1 billion as of June 30, 2020. We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events. I am very proud of our more than 2,100 colleagues that are working extremely hard to assist our clients and communities during these difficult times."

“We have proactively downgraded certain modified loans and other loans we consider at risk due to the COVID-19 induced economic slowdown. As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $156.4 million with the addition of $29.5 million in credit loss provisions during the quarter ended June 30, 2020,” Grescovich added. "This provision compares to a $21.7 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the second quarter a year ago. The allowance for credit losses - loans was 1.52% of total loans and 418% of non-performing loans at the end of the second quarter of 2020."

At June 30, 2020, Banner Corporation had $14.41 billion in assets, $10.13 billion in net loans and $12.02 billion in deposits. Banner operates 176 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

  • SBA Paycheck Protection Program. The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. As of June 30, 2020, Banner had funded 8,655 applications totaling $1.12 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA has been extended to August 8, 2020. Banner is continuing to accept new PPP applications based on this extended deadline and is assisting small businesses with other borrowing options as they become available, including the Main Street Lending Program and other government sponsored lending programs, as appropriate.
  • Loan Accommodations. Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or could be eligible for an additional deferral period for up to 90 days. In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months. Banner had deferred payment or waived interest on 3,314 loans totaling $1.1 billion through June 30, 2020. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through June 30, 2020 pursuant to applicable accounting and regulatory guidance. As of June 30, 2020, the deferral period had ended for approximately 62% of these loans.
  • Allowance for Credit Losses - Loans. Banner recorded a provision for credit losses of $29.5 million for the second quarter of 2020, compared to a $21.7 million provision in the preceding quarter and a $2.0 million provision in the second quarter a year ago. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of June 30, 2020 and March 31, 2020, respectively.
  • Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of our clients and our personnel. To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner's network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $2.2 million of related costs during the second quarter of 2020, compared to $239,000 of related costs in the first quarter of 2020.
  • Capital Management. At June 30, 2020, the tangible common shareholders' equity to tangible assets* ratio was 8.76% and Banner’s capital was well in excess of all regulatory requirements. On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. During the preceding quarter, prior to the COVID-19 pandemic outbreak, Banner repurchased 624,780 shares of its common stock. To preserve capital, Banner has discontinued any additional repurchase of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Second Quarter 2020 Highlights

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

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

Significant Recent Initiatives and Events

On June 30, 2020, Banner issued and sold in an underwritten offering the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. Banner intends to use the net proceeds of the offering for general corporate purposes, which may include providing capital to support its growth organically or through strategic acquisitions, repayment or redemption of outstanding indebtedness, the payment of dividends, financing investments and capital expenditures, repurchasing shares of its common stock, and for investments in the Banks as regulatory capital.

On November 1, 2019, Banner completed the acquisition of AltaPacific Bancorp (AltaPacific) and its wholly-owned subsidiary, AltaPacific Bank, of Santa Rosa, California. At closing, AltaPacific Bank had six branch locations, including one in Northern California and five in Southern California. Pursuant to the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.

The AltaPacific merger was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date. The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner. During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner's core systems and closure of overlapping branches.

Adoption of New Accounting Standard

In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). GAAP prior to ASU 2016-13 required an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 became effective for Banner on January 1, 2020. The adoption of ASU No. 2016-13 resulted in a $7.8 million increase to its allowance for credit losses - loans and a $7.0 million increase to its allowance for credit losses - unfunded loan commitments. The combined increases were recorded net of tax as an $11.2 million reduction to retained earnings as of the adoption date.

Income Statement Review

Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago.

Banner's net interest margin on a tax equivalent basis was 3.90% for the second quarter of 2020, a 35 basis-point decrease compared to 4.25% in the preceding quarter and a 54 basis-point decrease compared to 4.44% in the second quarter a year ago. “As expected, the 150 basis-point decrease in the fed funds target rate that occurred in March 2020, the full effect of the lower interest rate environment combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposit liquidity impacted our net interest margin during the quarter,” added Grescovich. Acquisition accounting adjustments added seven basis points to the net interest margin in the current quarter compared to ten basis points in the preceding quarter and seven basis points in the second quarter a year ago. The total purchase discount for acquired loans was $20.2 million at June 30, 2020, compared to $22.2 million at March 31, 2020, and $22.6 million at June 30, 2019. In the first six months of the year, Banner’s net interest margin on a tax equivalent basis was 4.07% compared to 4.43% in the first six months of 2019.

Average interest-earning asset yields decreased 50 basis points to 4.19% in the second quarter compared to 4.69% for the preceding quarter and decreased 78 basis points compared to 4.97% in the second quarter a year ago. Average loan yields decreased 51 basis points to 4.57% compared to 5.08% in the preceding quarter and decreased 82 basis points compared to 5.39% in the second quarter a year ago. Loan discount accretion added eight basis points to loan yields in the second quarter of 2020, compared to 12 basis points in the preceding quarter and nine basis points in the second quarter a year ago. Deposit costs were 0.23% in the second quarter of 2020, a 12 basis-point decrease compared to the preceding quarter and a 16 basis-point decrease compared to the second quarter a year ago. The decrease in deposit costs during the current quarter compared to the preceding quarter was the result of recent decreases in market interest rates; however, changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates. The total cost of funds was 0.31% during the second quarter of 2020, a 15 basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the second quarter a year ago.

Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of June 30, 2020 and March 31, 2020, respectively.

Total non-interest income was $27.8 million in the second quarter of 2020, compared to $19.2 million in the preceding quarter and $22.7 million in the second quarter a year ago. Deposit fees and other service charges were $7.5 million in the second quarter of 2020, compared to $9.8 million in the preceding quarter and $14.0 million in the second quarter a year ago. The decrease in deposit fees and other service charges from the second quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, as well as pandemic related fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $14.1 million in the second quarter, compared to $10.2 million in the preceding quarter and $5.9 million in the second quarter of 2019. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans. The increases compared to the second quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans primarily due to increased refinance activity. Home purchase activity accounted for 42% of one- to four-family mortgage loan originations in the second quarter of 2020, compared to 54% in the prior quarter and 77% in the second quarter of 2019. In the first six months of 2020, total non-interest income increased 15% to $47.0 million, compared to $40.8 million in the first six months of 2019.

Banner’s second quarter 2020 results included a $2.2 million net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading as a result of the tightening of market spreads during the quarter, and a $93,000 net gain on the sale of securities. In the preceding quarter, results included a $4.6 million net loss for fair value adjustments and a $78,000 net gain on the sale of securities. In the second quarter a year ago, results included an $114,000 net loss for fair value adjustments and a $28,000 net loss on the sale of securities.

Banner's total revenue increased 6% to $147.3 million for the second quarter of 2020, compared to $138.4 million in the preceding quarter, and increased 6% compared to $139.4 million in the second quarter a year ago. Year-to-date, total revenues increased 4% to $285.7 million compared to $273.6 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $145.0 million in the second quarter of 2020, compared to $142.9 million in the preceding quarter and $139.5 million in the second quarter of 2019. In the first six months of the year, adjusted revenue* was $287.9 million, compared to $273.7 million in the first six months of 2019.

Total non-interest expense was $89.6 million in the second quarter of 2020, compared to $95.2 million in the preceding quarter and $86.7 million in the second quarter of 2019. The decrease in non-interest expense during the second quarter of 2020 reflects an increase in capitalized loan origination costs, primarily related to the origination of PPP loans during the current quarter. A reduction in acquisition-related expenses also contributed to the decrease compared to the prior quarter as acquisition-related expenses were $336,000 for the second quarter of 2020, compared to $1.1 million for the preceding quarter and $301,000 in the second quarter a year ago. The current quarter includes a $905,000 recapture of provision for credit losses - unfunded loan commitments compared to a $1.7 million provision for the prior quarter and no provision for the year ago quarter. The previously mentioned increase in COVID-19 expenses during the current quarter partially offset these decreases. Year-to-date, total non-interest expense was $184.8 million, compared to $176.7 million in the same period a year earlier. Banner’s efficiency ratio was 60.85% for the current quarter, compared to 68.76% in the preceding quarter and 62.22% in the year ago quarter. Banner’s adjusted efficiency ratio* was 57.95% for the current quarter, compared to 63.47% in the preceding quarter and 59.56% in the year ago quarter.

For the second quarter of 2020, Banner had $4.6 million in state and federal income tax expense for an effective tax rate of 16.3%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 13% to $14.41 billion at June 30, 2020, compared to $12.78 billion at March 31, 2020, and increased 22% when compared to $11.85 billion at June 30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.30 billion at June 30, 2020, compared to $2.15 billion at March 31, 2020 and $1.85 billion at June 30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at June 30, 2020, compared to 2.6 years at June 30, 2019.

Net loans receivable increased 11% to $10.13 billion at June 30, 2020, compared to $9.16 billion at March 31, 2020, and increased 17% when compared to $8.65 billion at June 30, 2019. The increase in net loans compared to the prior quarter primarily reflects the origination of SBA PPP loans during the current quarter, which totaled $1.12 billion outstanding as of June 30, 2020. The year-over-year increase in net loans included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019. Commercial real estate and multifamily real estate loans increased to $4.11 billion at June 30, 2020, compared to $4.02 billion at March 31, 2020, and increased 13% compared to $3.62 billion a year ago. Commercial business loans increased 46% to $3.15 billion at June 30, 2020, compared to $2.17 billion at March 31, 2020, and increased 56% compared to $2.02 billion a year ago. Agricultural business loans decreased to $328.1 million at June 30, 2020, compared to $330.3 million three months earlier and $345.8 million a year ago. Total construction, land and land development loans were $1.24 billion at June 30, 2020, a small increase from $1.22 billion at March 31, 2020, and a 9% increase compared to $1.14 billion a year earlier. Consumer loans decreased to $642.4 million at June 30, 2020, compared to $661.8 million at March 31, 2020, and $698.3 million a year ago. One- to four-family loans decreased to $817.8 million at June 30, 2020, compared to $881.4 million at March 31, 2020, and $918.2 million a year ago.

Loans held for sale were $258.7 million at June 30, 2020, compared to $182.4 million at March 31, 2020, and $170.7 million at June 30, 2019. The volume of one- to four- family residential mortgage loans sold was $292.4 million in the current quarter, compared to $204.0 million in the preceding quarter and $139.0 million in the second quarter a year ago. During the second quarter of 2020, Banner sold $3.1 million in multifamily loans compared to $119.7 million in the preceding quarter and none in the second quarter a year ago. The current quarter reflects a temporary disruption in the secondary market for multifamily loans as a results of the COVID-19 pandemic.

Total deposits increased 15% to $12.02 billion at June 30, 2020, compared to $10.45 billion at March 31, 2020, and increased 29% when compared to $9.29 billion a year ago. The increase in total deposits from the preceding quarter was due primarily to SBA PPP loan funds deposited into customer accounts and an increase in customer deposits accounts due changes in spending habits during the COVID-19 pandemic. The year-over-year increase in deposits included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019. Non-interest-bearing account balances increased 29% to $5.28 billion at June 30, 2020, compared to $4.11 billion at March 31, 2020, and increased 44% compared to $3.67 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 18% from the prior quarter and increased 34% compared to a year ago and represented 91% of total deposits at June 30, 2020. Certificates of deposit decreased 11% to $1.04 billion at June 30, 2020, compared to $1.17 billion at March 31, 2020, and decreased slightly compared to $1.07 billion a year earlier. The decrease in certificates of deposit during the second quarter of 2020 primarily reflects the decrease in brokered deposits to $119.4 million at June 30, 2020, compared to $251.0 million at March 31, 2020 and $138.4 million a year ago. FHLB borrowings totaled $150.0 million at June 30, 2020, compared to $247.0 million at March 31, 2020, and $606.0 million a year earlier.

At June 30, 2020, total common shareholders' equity was $1.63 billion, or 11.28% of assets, compared to $1.60 billion or 12.53% of assets at March 31, 2020, and $1.52 billion or 12.84% of assets a year ago. At June 30, 2020, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.23 billion, or 8.76% of tangible assets*, compared to $1.20 billion, or 9.70% of tangible assets, at March 31, 2020, and $1.15 billion, or 10.05% of tangible assets, a year ago. Banner's tangible book value per share* increased to $34.89 at June 30, 2020, compared to $33.36 per share a year ago.

Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At June 30, 2020, Banner's common equity Tier 1 capital ratio was 10.66%, its Tier 1 leverage capital to average assets ratio was 9.83%, and its total capital to risk-weighted assets ratio was 14.14%.

Credit Quality

The allowance for credit losses - loans was $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, compared to $130.5 million at March 31, 2020, or 1.41% of total loans receivable outstanding and 299% of non-performing loans, and $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% of non-performing loans. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments which was $10.6 million at June 30, 2020, compared to $11.5 million at March 31, 2020 and $2.6 million at June 30, 2019. Net loan charge-offs totaled $3.7 million in the second quarter of 2020, compared to net loan recoveries of $404,000 in the preceding quarter and $1.1 million of net charge-offs in the second quarter a year ago. Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses. Non-performing loans were $37.4 million at June 30, 2020, compared to $43.7 million at March 31, 2020, and $18.4 million a year ago. Real estate owned and other repossessed assets were $2.4 million at June 30, 2020, compared to $2.4 million at March 31, 2020, and $2.6 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date. At June 30, 2020, the total purchase discount for acquired loans was $20.2 million.

Banner's total non-performing assets were $39.9 million, or 0.28% of total assets, at June 30, 2020, compared to $46.1 million, or 0.36% of total assets, at March 31, 2020, and $21.0 million, or 0.18% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, July 23, 2020, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10145372, or at www.bannerbank.com.

About the Company

Banner Corporation is a $14.41 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

The COVID-19, pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner's business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; and (16) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.


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



FINANCIAL CONDITION                 Percentage Change
(in thousands except shares and per share data) Jun 30, 2020   Mar 31, 2020   Dec 31, 2019   Jun 30, 2019   Prior
Qtr
  Prior
Yr Qtr
                       
ASSETS                      
Cash and due from banks $ 291,036     $ 211,013     $ 234,359     $ 187,043     37.9 %   55.6 %
Interest-bearing deposits 128,938     83,988     73,376     59,753     53.5 %   115.8 %
Total cash and cash equivalents 419,974     295,001     307,735     246,796     42.4 %   70.2 %
Securities - trading 23,239     21,040     25,636     25,741     10.5 %   (9.7 )%
Securities - available for sale 1,706,781     1,608,224     1,551,557     1,561,009     6.1 %   9.3 %
Securities - held to maturity 441,075     437,846     236,094     203,222     0.7 %   117.0 %
Total securities 2,171,095     2,067,110     1,813,287     1,789,972     5.0 %   21.3 %
Equity securities 340,052                 nm   nm
Federal Home Loan Bank stock 16,363     20,247     28,342     34,583     (19.2 )%   (52.7 )%
Loans held for sale 258,700     182,428     210,447     170,744     41.8 %   51.5 %
Loans receivable 10,283,999     9,285,744     9,305,357     8,746,550     10.8 %   17.6 %
Allowance for credit losses - loans (156,352 )   (130,488 )   (100,559 )   (98,254 )   19.8 %   59.1 %
Net loans receivable 10,127,647     9,155,256     9,204,798     8,648,296     10.6 %   17.1 %
Accrued interest receivable 48,806     40,732     37,962     40,238     19.8 %   21.3 %
Real estate owned held for sale, net 2,400     2,402     814     2,513     (0.1 )%   (4.5 )%
Property and equipment, net 173,360     175,235     178,008     171,233     (1.1 )%   1.2 %
Goodwill 373,121     373,121     373,121     339,154     %   10.0 %
Other intangibles, net 25,155     27,157     29,158     28,595     (7.4 )%   (12.0 )%
Bank-owned life insurance 190,468     193,140     192,088     178,922     (1.4 )%   6.5 %
Other assets 258,466     249,121     228,271     196,328     3.8 %   31.7 %
Total assets $ 14,405,607     $ 12,780,950     $ 12,604,031     $ 11,847,374     12.7 %   21.6 %
LIABILITIES                      
Deposits:                      
Non-interest-bearing $ 5,281,559     $ 4,107,262     $ 3,945,000     $ 3,671,995     28.6 %   43.8 %
Interest-bearing transaction and savings accounts 5,692,715     5,175,969     4,983,238     4,546,202     10.0 %   25.2 %
Interest-bearing certificates 1,042,006     1,166,306     1,120,403     1,070,770     (10.7 )%   (2.7 )%
Total deposits 12,016,280     10,449,537     10,048,641     9,288,967     15.0 %   29.4 %
Advances from Federal Home Loan Bank 150,000     247,000     450,000     606,000     (39.3 )%   (75.2 )%
Customer repurchase agreements and other borrowings 166,084     128,764     118,474     118,370     29.0 %   40.3 %
Subordinated notes, net 98,140                 nm   nm
Junior subordinated debentures at fair value 109,613     99,795     119,304     113,621     9.8 %   (3.5 )%
Accrued expenses and other liabilities 194,964     208,753     227,889     159,131     (6.6 )%   22.5 %
Deferred compensation 45,423     45,401     45,689     40,230     %   12.9 %
Total liabilities 12,780,504     11,179,250     11,009,997     10,326,319     14.3 %   23.8 %
SHAREHOLDERS' EQUITY                      
Common stock 1,345,096     1,343,699     1,373,940     1,306,888     0.1 %   2.9 %
Retained earnings 201,448     177,922     186,838     178,257     13.2 %   13.0 %
Other components of shareholders' equity 78,559     80,079     33,256     35,910     (1.9 )%   118.8 %
Total shareholders' equity 1,625,103     1,601,700     1,594,034     1,521,055     1.5 %   6.8 %
Total liabilities and shareholders' equity $ 14,405,607     $ 12,780,950     $ 12,604,031     $ 11,847,374     12.7 %   21.6 %
Common Shares Issued:                      
Shares outstanding at end of period 35,157,899     35,102,459     35,751,576     34,573,643          
Common shareholders' equity per share (1) $ 46.22     $ 45.63     $ 44.59     $ 43.99          
Common shareholders' tangible equity per share (1) (2) $ 34.89     $ 34.23     $ 33.33     $ 33.36          
Common shareholders' tangible equity to tangible assets (2) 8.76 %   9.70 %   9.77 %   10.05 %        
Consolidated Tier 1 leverage capital ratio 9.83 %   10.45 %   10.71 %   10.83 %        


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


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


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


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending June 30, 2020, March 31, 2020, and June 30, 2019.

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


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


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


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



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


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



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


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


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


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




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

(1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.0 million, $1.2 million, and $1.1 million for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $963,000, $522,000, and $353,000 for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP reconciliation tables above under "Executive Overview—Non-GAAP Financial Measures."


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

(1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.2 million and $2.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and $727,000 for the six months ended June 30, 2020 and June 30, 2019, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP reconciliation tables above under "Executive Overview—Non-GAAP Financial Measures."


ADDITIONAL FINANCIAL INFORMATION                  
(dollars in thousands)                  
                   
* Non-GAAP Financial Measures                  
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
                   
ADJUSTED REVENUE Quarters Ended   Six Months Ended
  Jun 30, 2020   Mar 31, 2020   Jun 30, 2019   Jun 30, 2020   Jun 30, 2019
Net interest income before provision for loan losses $ 119,457     $ 119,258     $ 116,695     $ 238,715     $ 232,799  
Total non-interest income 27,843     19,165     22,676     47,008     40,801  
Total GAAP revenue 147,300     138,423     139,371     285,723     273,600  
Exclude net gain (loss) on sale of securities (93 )   (78 )   28     (171 )   27  
Exclude net change in valuation of financial instruments carried at fair value (2,199 )   4,596     114     2,397     103  
Adjusted revenue (non-GAAP) $ 145,008     $ 142,941     $ 139,513     $ 287,949     $ 273,730  


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


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


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


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

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