Banner Corporation Reports Net Income of $36.5 Million, or $1.03 Per Diluted Share, for Third Quarter 2020; Declares Quarterly Cash Dividend of $0.41 Per Share; Commits $1.5 million to Support Minority-Owned Small Businesses

Nachrichtenquelle: globenewswire
21.10.2020, 22:00  |  101   |   |   

WALLA WALLA, Wash., Oct. 21, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank and Islanders Bank, today reported net income of $36.5 million, or $1.03 per diluted share, for the third quarter 2020, compared to $23.5 million, or $0.67 per diluted share, in the preceding quarter and $39.6 million, or $1.15 per diluted share, in the third quarter of 2019. Banner’s third quarter and year-to-date earnings reflect the continuing impact of the global COVID-19 pandemic. In the first nine months of 2020, net income was $77.0 million, or $2.17 per diluted share, compared to $112.6 million, or $3.23 per diluted share, in the first nine months a year ago. The results for the first nine months of 2020 include $1.5 million of acquisition-related expenses, compared to $3.1 million of acquisition-related expenses in the first nine months of 2019.

Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable November 12, 2020, to common shareholders of record on November 3, 2020.

“The continued successful execution of our super community bank strategy generated solid revenue growth compared to both the preceding quarter and the year ago quarter. Mortgage banking revenues more than doubled compared to a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates,” said Mark Grescovich, President and CEO. “Third quarter earnings were impacted by a number of items, including the allowance for credit losses based on the impact of the COVID-19 pandemic on the economy. As an additional way to support the communities we serve, during this period of economic adversity, the company committed $1.5 million to selected Community Development Financial Institutions (CDFIs) in support of minority-owned small businesses as well as businesses located in economically disadvantaged rural and urban communities. Further, as of September 30, 2020, Banner has provided SBA Paycheck Protection Program loans totaling nearly $1.15 billion to 9,103 businesses and provided deferred payments, or waived interest, on 3,370 loans totaling $1.09 billion. We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events.”

“Due to the pandemic, and its subsequent impact on our communities, we have proactively downgraded certain modified loans and other loans we consider at risk,” Grescovich said. “As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $168.0 million with the addition of $13.6 million in credit loss provisions during the quarter ended September 30, 2020. This provision compares to a $29.5 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago.” The allowance for credit losses - loans was 1.65% of total loans and 482% of non-performing loans at the end of the third quarter of 2020.

At September 30, 2020, Banner Corporation had $14.64 billion in assets, $10.00 billion in net loans and $12.22 billion in deposits. Banner operates 170 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

  • SBA Paycheck Protection Program. The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. As of September 30, 2020, Banner had funded 9,103 applications totaling $1.15 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA was August 8, 2020. Banner is no longer accepting new applications for PPP loans and is preparing to process applications for PPP loan forgiveness beginning in the fourth quarter of 2020. Banner will continue to assist small businesses with other borrowing options as they become available.
  • Loan Accommodations. Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or may be eligible for an additional deferral period for up to 90 days. In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months. Year to date, Banner has deferred payment or waived interest on 3,370 loans totaling $1.09 billion. Through September 30, 2020 the deferral period had ended for approximately 78%, or $849.7 million of these loans, leaving $239.6 million still on deferral. Of the loans still on deferral, 107 loans totaling $160.4 million have received a second deferral. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through September 30, 2020 pursuant to applicable accounting and regulatory guidance.
  • Allowance for Credit Losses - Loans. Banner recorded a provision for credit losses of $13.6 million for the third quarter of 2020, compared to a $29.5 million provision in the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of September 30, 2020 and June 30, 2020, respectively.
  • Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of its clients and personnel. To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner’s network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $778,000 of related costs during the third quarter of 2020, compared to $2.2 million of related costs in the second quarter of 2020.
  • Capital Management. At September 30, 2020, the tangible common shareholders’ equity to tangible assets* ratio was 8.78% and Banner’s capital was well in excess of all regulatory requirements. On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. In response to the COVID-19 pandemic outbreak and to preserve capital, Banner has suspended repurchases of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Third Quarter 2020 Highlights

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

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

Significant Recent Initiatives and Events

On September 25, 2020, Banner completed the consolidation of six branches. In addition, Banner has made the decision to consolidate another 14 branches in December of 2020. Client adoption of mobile and digital banking accelerated during the second and third quarters, while physical branch transaction volume declined. We believe this shift in client service delivery channel preference will sustain after the pandemic social distancing related restrictions have ended.

On July 22, 2020, Banner announced plans to merge Islanders Bank into Banner Bank. Regulatory approvals for the merger were received in October 2020, and the merger is expected to be completed in the first quarter of 2021.

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

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

Income Statement Review

Net interest income, before the provision for credit losses, was $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.72% for the third quarter of 2020, a 15 basis-point decrease compared to 3.87% in the preceding quarter and a 57 basis-point decrease compared to 4.29% in the third quarter a year ago.

“During the quarter, the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposits, resulting in significant growth in low yielding interest-bearing deposits, adversely impacted our net interest margin,” said Grescovich. Acquisition accounting adjustments added seven basis points to the net interest margin in both the current quarter and in the preceding quarter and six basis points in the third quarter a year ago. The total purchase discount for acquired loans was $17.9 million at September 30, 2020, compared to $20.2 million at June 30, 2020, and $21.3 million at September 30, 2019. In the first nine months of the year, Banner’s net interest margin on a tax equivalent basis was 3.93% compared to 4.38% in the first nine months of 2019.

Average interest-earning asset yields decreased 18 basis points to 3.98% in the third quarter compared to 4.16% for the preceding quarter and decreased 85 basis points compared to 4.83% in the third quarter a year ago. Average loan yields decreased ten basis points to 4.47% compared to 4.57% in the preceding quarter and decreased 77 basis points compared to 5.24% in the third quarter a year ago. Loan discount accretion added nine basis points to loan yields in the third quarter of 2020, compared to eight basis points in the preceding quarter and seven basis points in the third quarter a year ago. Deposit costs were 0.17% in the third quarter of 2020, a six basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the third quarter a year ago. The decrease in deposit costs during the current quarter compared to the preceding quarter was primarily the result of decreases in market interest rates earlier this year, as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates. The total cost of funds was 0.27% during the third quarter of 2020, a four basis-point decrease compared to the preceding quarter and a 30 basis-point decrease compared to the third quarter a year ago.

Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of September 30, 2020 and June 30, 2020, respectively.

Total non-interest income was $28.2 million in the third quarter of 2020, compared to $27.7 million in the preceding quarter and $20.9 million in the third quarter a year ago. Deposit fees and other service charges were $8.7 million in the third quarter of 2020, compared to $7.5 million in the preceding quarter and $10.3 million in the third quarter a year ago. The decrease in deposit fees and other service charges from the third quarter a year ago is primarily a result of fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $16.6 million in the third quarter, compared to $14.1 million in the preceding quarter and $6.6 million in the third quarter of 2019. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans. The increases compared to the third quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans due to increased production related to refinance activity as well as increased gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2020, compared to 42% in the prior quarter and 56% in the third quarter of 2019. In the first nine months of 2020, total non-interest income increased 22% to $75.1 million, compared to $61.7 million in the first nine months of 2019.

Banner’s third quarter 2020 results included a $37,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading as a result of the tightening of market spreads during the quarter, and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of our Visa Class B shares. In the preceding quarter, results included a $2.2 million net gain for fair value adjustments and a $93,000 net gain on the sale of securities. In the third quarter a year ago, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.

Banner’s total revenue increased 1% to $149.2 million for the third quarter of 2020, compared to $147.3 million in the preceding quarter, and increased 9% compared to $137.5 million in the third quarter a year ago. Year-to-date, total revenues increased 6% to $435.0 million compared to $411.1 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $148.6 million in the third quarter of 2020, compared to $145.0 million in the preceding quarter and $137.6 million in the third quarter of 2019. In the first nine months of the year, adjusted revenue* was $436.5 million, compared to $411.3 million in the first nine months of 2019.

Total non-interest expense was $91.6 million in the third quarter of 2020, compared to $89.6 million in the preceding quarter and $87.3 million in the third quarter of 2019. The increase in non-interest expense reflects an increase in the provision for credit losses - unfunded commitments in the current quarter. The current quarter includes a $1.5 million of provision for credit losses - unfunded loan commitments compared to a $905,000 recapture of provision for the prior quarter and no provision for the year ago quarter. A reduction in capitalized loan origination costs during third quarter of 2020, primarily related to the decline in the origination of SBA PPP loans compared to the prior quarter, also contributed to the quarter-over-quarter increase in non-interest expense. The decrease in COVID-19 expenses during the current quarter as well as lower salary and employee benefits as a result of lower medical claims partially offset these increases. The year-over-year increase also reflects an FDIC credit of $2.7 million for previously paid deposit insurance premiums which resulted in a net deposit insurance benefit of $1.6 million for the quarter ended September 30, 2019. Acquisition-related expenses were $5,000 for the third quarter of 2020, compared to $336,000 for the preceding quarter and $676,000 in the third quarter a year ago. Year-to-date, total non-interest expense was $276.4 million, compared to $264.0 million in the same period a year earlier. Banner’s efficiency ratio was 61.35% for the current quarter, compared to 60.85% in the preceding quarter and 63.50% in the year ago quarter. Banner’s adjusted efficiency ratio* was 59.05% for the current quarter, compared to 57.95% in the preceding quarter and 60.71% in the year ago quarter.

For the third quarter of 2020, Banner had $7.5 million in state and federal income tax expense for an effective tax rate of 17.0%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 2% to $14.64 billion at September 30, 2020, compared to $14.41 billion at June 30, 2020, and increased 21% when compared to $12.10 billion at September 30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.63 billion at September 30, 2020, compared to $2.30 billion at June 30, 2020 and $1.87 billion at September 30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at September 30, 2020, compared to 3.1 years at September 30, 2019.

Net loans receivable decreased 1% to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019. The year-over-year increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020, which totaled $1.15 billion as of September 30, 2020 and also included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019. Commercial real estate and multifamily real estate loans decreased to $4.07 billion at September 30, 2020, compared to $4.11 billion at June 30, 2020, and increased 11% compared to $3.67 billion a year ago. Commercial business loans decreased 1% to $3.11 billion at September 30, 2020, compared to $3.15 billion at June 30, 2020, and increased 52% compared to $2.05 billion a year ago primarily due to SBA PPP loans. Agricultural business loans decreased to $326.2 million at September 30, 2020, compared to $328.1 million three months earlier and $356.0 million a year ago. Total construction, land and land development loans were $1.27 billion at September 30, 2020, a 3% increase from $1.24 billion at June 30, 2020, and a 9% increase compared to $1.16 billion a year earlier. Consumer loans decreased to $622.8 million at September 30, 2020, compared to $642.4 million at June 30, 2020, and $685.1 million a year ago. One- to four-family loans decreased to $771.4 million at September 30, 2020, compared to $817.8 million at June 30, 2020, and $909.0 million a year ago.

Loans held for sale were $185.9 million at September 30, 2020, compared to $258.7 million at June 30, 2020, and $244.9 million at September 30, 2019. The volume of one- to four- family residential mortgage loans sold was $327.7 million in the current quarter, compared to $292.4 million in the preceding quarter and $204.6 million in the third quarter a year ago. During the third quarter of 2020, Banner sold $108.6 million in multifamily loans compared to $3.1 million in the preceding quarter and $79.4 million in the third quarter a year ago. The lower level of multifamily loan sales in the second quarter of 2020 reflects a temporary disruption in the secondary market for multifamily loans as a result of the COVID-19 pandemic.

Total deposits increased 2% to $12.22 billion at September 30, 2020, compared to $12.02 billion at June 30, 2020, and increased 26% when compared to $9.73 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in deposits accounts due to changes in spending habits during the COVID-19 pandemic. The year-over-year increase in deposits also included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019. Non-interest-bearing account balances increased 2% to $5.41 billion at September 30, 2020, compared to $5.28 billion at June 30, 2020, and increased 39% compared to $3.89 billion a year ago. Core deposits increased 3% from the prior quarter and increased 33% compared to a year ago and represented 93% of total deposits at September 30, 2020, compared to 91% at June 30, 2020. Certificates of deposit decreased 12% to $915.4 million at September 30, 2020, compared to $1.04 billion at June 30, 2020, and decreased 25% compared to $1.22 billion a year earlier. Banner had no brokered deposits at September 30, 2020, compared to $119.4 million in brokered deposits at June 30, 2020 and $299.5 million a year ago. FHLB borrowings totaled $150.0 million at September 30, 2020, compared to $150.0 million at June 30, 2020, and $382.0 million a year earlier.

At September 30, 2020, total common shareholders’ equity was $1.65 billion, or 11.25% of assets, compared to $1.63 billion or 11.28% of assets at June 30, 2020, and $1.53 billion or 12.65% of assets a year ago. At September 30, 2020, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.25 billion, or 8.78% of tangible assets*, compared to $1.23 billion, or 8.76% of tangible assets, at June 30, 2020, and $1.17 billion, or 9.93% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $35.56 at September 30, 2020, compared to $34.10 per share a year ago.

Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At September 30, 2020, Banner's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 9.56%, and its total capital to risk-weighted assets ratio was 14.65%.

Credit Quality

The allowance for credit losses - loans was $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, compared to $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, and $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments which was $12.1 million at September 30, 2020, compared to $10.6 million at June 30, 2020 and $2.6 million at September 30, 2019. Net loan charge-offs totaled $2.0 million in the third quarter of 2020, compared to net loan charge-offs of $3.7 million in the preceding quarter and $2.5 million of net charge-offs in the third quarter a year ago. Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses. Non-performing loans were $34.8 million at September 30, 2020, compared to $37.4 million at June 30, 2020, and $18.3 million a year ago. Real estate owned and other repossessed assets were $1.8 million at September 30, 2020, compared to $2.4 million at June 30, 2020, and $343,000 a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date. At September 30, 2020, the total purchase discount for acquired loans was $17.9 million.

Banner’s total substandard loans were $423.2 million at September 30, 2020, compared to $359.8 million at June 30, 2020, and $113.2 million a year ago. The increase in substandard loans during the most recent quarters primarily reflects Banner proactively downgrading loans in industries most at risk due to COVID-19.

Banner’s total non-performing assets were $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets, at June 30, 2020, and $18.6 million, or 0.15% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, October 22, 2020, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10147897, or at www.bannerbank.com.

About the Company

Banner Corporation is a $14.64 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

The COVID-19, pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (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   Nine Months Ended
(in thousands except shares and per share data)   Sep 30, 2020   June 30, 2020   Sep 30, 2019   Sep 30, 2020   Sep 30, 2019
                     
INTEREST INCOME:                    
Loans receivable   $ 116,716     $ 115,173     $ 118,096     $ 350,815     $ 350,558  
Mortgage-backed securities   7,234     7,983     9,415     24,354     29,716  
Securities and cash equivalents   5,631     5,591     3,925     14,824     11,996  
    129,581     128,747     131,436     389,993     392,270  
INTEREST EXPENSE:                    
Deposits   5,179     6,694     10,014     20,623     27,680  
Federal Home Loan Bank advances   988     984     3,107     4,036     9,953  
Other borrowings   128     238     82     482     209  
Junior subordinated debentures and subordinated notes   2,260     1,251     1,612     4,988     5,008  
    8,555     9,167     14,815     30,129     42,850  
Net interest income before provision for credit losses   121,026     119,580     116,621     359,864     349,420  
PROVISION FOR CREDIT LOSSES   13,641     29,528     2,000     64,917     6,000  
Net interest income   107,385     90,052     114,621     294,947     343,420  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   8,742     7,546     10,331     26,091     36,995  
Mortgage banking operations   16,562     14,138     6,616     40,891     15,967  
Bank-owned life insurance   1,286     2,317     1,076     4,653     3,475  
Miscellaneous   951     1,427     2,914     5,017     5,431  
    27,541     25,428     20,937     76,652     61,868  
Net gain (loss) on sale of securities   644     93     (2 )   815     (29 )
Net change in valuation of financial instruments carried at fair value   37     2,199     (69 )   (2,360 )   (172 )
Total non-interest income   28,222     27,720     20,866     75,107     61,667  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   61,171     63,415     59,090     184,494     169,359  
Less capitalized loan origination costs   (8,517 )   (11,110 )   (7,889 )   (25,433 )   (20,137 )
Occupancy and equipment   13,022     12,985     12,566     39,114     39,013  
Information / computer data services   6,090     6,084     5,657     17,984     16,256  
Payment and card processing services   4,044     3,851     4,330     12,135     12,355  
Professional and legal expenses   2,368     2,163     2,704     6,450     7,474  
Advertising and marketing   1,105     652     2,221     3,584     5,815  
Deposit insurance expense   1,628     1,705     (1,604 )   4,968     1,232  
State/municipal business and use taxes   1,196     1,104     1,011     3,284     2,963  
Real estate operations   (11 )   4     126     93     263  
Amortization of core deposit intangibles   1,864     2,002     1,985     5,867     6,090  
Provision/(recapture) for credit losses - unfunded loan commitments   1,539     (905 )       2,356      
Miscellaneous   5,285     5,199     6,435     16,841     20,230  
    90,784     87,149     86,632     271,737     260,913  
COVID-19 expenses   778     2,152         3,169      
Acquisition-related expenses   5     336     676     1,483     3,125  
Total non-interest expense   91,567     89,637     87,308     276,389     264,038  
Income before provision for income taxes   44,040     28,135     48,179     93,665     141,049  
PROVISION FOR INCOME TAXES   7,492     4,594     8,602     16,694     28,426  
NET INCOME   $ 36,548     $ 23,541     $ 39,577     $ 76,971     $ 112,623  
Earnings per share available to common shareholders:                    
Basic   $ 1.04     $ 0.67     $ 1.15     $ 2.18     $ 3.24  
Diluted   $ 1.03     $ 0.67     $ 1.15     $ 2.17     $ 3.23  
Cumulative dividends declared per common share   $ 0.41     $     $ 0.41     $ 0.82     $ 1.23  
Weighted average common shares outstanding:                    
Basic   35,193,109     35,189,260     34,407,462     35,285,567     34,760,607  
Diluted   35,316,679     35,283,690     34,497,994     35,524,771     34,850,006  
Increase (decrease) in common shares outstanding   669     55,440     (400,286 )   (593,008 )   (1,009,415 )


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


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


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


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


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

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


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


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


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


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


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


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


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


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


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


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


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


(1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.4 million, $1.0 million, and $889,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $976,000, $963,000, and $389,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.


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


(1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.6 million and $3.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.5 million and $1.1 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION                  
(dollars in thousands)                  
                   
* Non-GAAP Financial Measures                  
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
                   
ADJUSTED REVENUE Quarters Ended   Nine Months Ended
  Sep 30, 2020   June 30, 2020   Sep 30, 2019   Sep 30, 2020   Sep 30, 2019
Net interest income before provision for credit losses $ 121,026     $ 119,580     $ 116,621     $ 359,864     $ 349,420  
Total non-interest income 28,222     27,720     20,866     75,107     61,667  
Total GAAP revenue 149,248     147,300     137,487     434,971     411,087  
Exclude net (gain) loss on sale of securities (644 )   (93 )   2     (815 )   29  
Exclude net change in valuation of financial instruments carried at fair value (37 )   (2,199 )   69     2,360     172  
Adjusted revenue (non-GAAP) $ 148,567     $ 145,008     $ 137,558     $ 436,516     $ 411,288  


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

 

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


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


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

Banner Aktie jetzt über den Testsieger (Finanztest 11/2020) handeln, ab 0 € auf Smartbroker.de



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Banner Corporation Reports Net Income of $36.5 Million, or $1.03 Per Diluted Share, for Third Quarter 2020; Declares Quarterly Cash Dividend of $0.41 Per Share; Commits $1.5 million to Support Minority-Owned Small Businesses WALLA WALLA, Wash., Oct. 21, 2020 (GLOBE NEWSWIRE) - Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank and Islanders Bank, today reported net income of $36.5 million, or $1.03 per diluted share, for the third …

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