Banner Corporation Reports Net Income of $39.0 Million, or $1.10 Per Diluted Share, for Fourth Quarter 2020; Earns $115.9 Million, or $3.26 Per Diluted Share, in 2020; Declares Quarterly Cash Dividend of $0.41 Per Share

WALLA WALLA, Wash., Jan. 21, 2021 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank and Islanders Bank, today reported net income of $39.0 million, or $1.10 per diluted share, for the fourth quarter 2020, a 7% increase compared to $36.5 million, or $1.03 per diluted share, in the preceding quarter and a 16% increase compared to $33.7 million, or $0.95 per diluted share, in the fourth quarter of 2019. Net income for 2020 was $115.9 million, or $3.26 per diluted share, compared to $146.3 million, or $4.18 per diluted share for 2019. Full year 2020 results include $64.3 million in provision for credit losses primarily resulting from the COVID-19 pandemic, compared to $10.0 million in provision for credit losses in 2019. The 2020 results also include $2.1 million of merger and acquisition-related expenses, compared to $7.5 million of merger and acquisition-related expenses for 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 February 16, 2021, to common shareholders of record on February 4, 2021.

“The historic events of 2020 brought serious economic, health and personal challenges to everyone in our footprint and beyond, and our team of professional bankers rose to meet those challenges to support our clients and the communities we serve,” said Mark Grescovich, President and CEO. “Our core performance for the fourth quarter and for the year reflects the continued execution of our super community bank strategy. That strategy supports growing new client relationships, adding to our core funding position by growing core deposits, and promoting client loyalty and advocacy through our responsive service model.”

“To provide support for our clients, we have made available several assistance programs,” continued Grescovich. “During the year, Banner committed $1.5 million to selected Community Development Financial Institutions in support of minority-owned small businesses as well as businesses located in economically disadvantaged rural and urban communities. Additionally, we funded SBA Paycheck Protection Program or PPP loans totaling nearly $1.15 billion to 9,103 businesses as of year-end, and we are actively participating in the latest SBA PPP loan program that opened in mid-January 2021. Further, Banner provided deferred payments, or waived interest, for borrowers that were the most impacted by the COVID-19 pandemic. We will continue to live by our core values, summed up as doing the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of capital through all economic cycles and changing events.”

“Due to the decrease in loan balances as well as an improvement in the forecasted economic indicators utilized during the current quarter, we recorded a $601,000 recapture to our provision for credit losses during the current quarter. This compares to a $13.6 million provision for credit losses during the preceding quarter and a $4.0 million provision for loan losses in the fourth quarter a year ago,” said Grescovich. The allowance for credit losses - loans was 1.69% of total loans and 470% of non-performing loans at December 31, 2020, compared to 1.65% of total loans and 482% of non-performing loans at September 30, 2020.

At December 31, 2020, Banner Corporation had $15.03 billion in assets, $9.70 billion in net loans and $12.57 billion in deposits. Banner operates 155 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

• SBA Paycheck Protection Program. The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. The deadline for PPP loan applications to the SBA under the original PPP was August 8, 2020. Under this program Banner funded 9,103 applications totaling $1.15 billion of loans in its service area and began processing applications for loan forgiveness in the fourth quarter of 2020. As of December 31, 2020, Banner had received SBA forgiveness for 595 PPP loans totaling $112.3 million. In January, Banner began accepting and processing loan applications under the second PPP program enacted in December 2020.
• 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. At December 31, 2020, Banner had 158 loans totaling $75.4 million still on deferral. Of the loans still on deferral, 26 loans totaling $33.9 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 December 31, 2020 pursuant to applicable accounting and regulatory guidance.
• Allowance for Credit Losses - Loans. Banner recorded a recapture of provision for credit losses of $601,000 for the fourth quarter of 2020. This compares to a $13.6 million provision for credit losses recorded in the preceding quarter and a $4.0 million provision for loan losses recorded in the fourth quarter a year ago. The recapture of provision for the current quarter primarily reflects the decrease in loan balances while the provision for credit losses recorded in the preceding quarter primarily reflected the deterioration in forecasted economic indicators as a result of the COVID-19 pandemic and for both periods the economic outlook that existed at their respective quarter end.
• Branch Operations, IT Changes and One-Time Expenses. Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to help safeguard 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 $333,000 of related costs during the fourth quarter of 2020, compared to $778,000 of related costs in the third quarter of 2020. The COVID-19 pandemic response expenses for 2020 were $3.5 million.
• Capital Management. At December 31, 2020, the tangible common shareholders’ equity to tangible assets* ratio was 8.69% 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. On December 21, 2020, Banner announced that its Board of Directors authorized the repurchase of up to 1,757,781 shares of Banner’s common stock, which is equivalent to approximately 5% of its common stock.
  

Fourth Quarter 2020 Highlights

• Revenues decreased to $144.9 million, compared to $149.2 million in the preceding quarter, and increased 4% when compared to $139.8 million in the fourth quarter a year ago.
• Net interest income, before the provision for credit losses, increased to $121.4 million in the fourth quarter of 2020, compared to $121.0 million in the preceding quarter and $119.5 million in the fourth quarter a year ago.
• Net interest margin was 3.57%, compared to 3.65% in the preceding quarter and 4.20% in the fourth quarter a year ago.
• Net interest margin on a tax equivalent basis was 3.64%, compared to 3.72% in the preceding quarter and 4.26% in the fourth quarter a year ago.
• Mortgage banking revenues decreased 35% to $10.7 million, compared to $16.6 million in the preceding quarter, and increased 71% compared to $6.2 million in the fourth quarter a year ago.
• Return on average assets was 1.04%, compared to 1.01% in the preceding quarter and 1.07% in the fourth quarter a year ago.
• Net loans receivable decreased to $9.70 billion at December 31, 2020, compared to $10.00 billion at September 30, 2020, and increased 5% when compared to $9.20 billion at December 31, 2019.
• Non-performing assets decreased to $36.5 million, or 0.24% of total assets, at December 31, 2020, compared to $36.7 million, or 0.25% of total assets in the preceding quarter, and decreased from $40.5 million, or 0.32% of total assets, at December 31, 2019.
• The allowance for credit losses - loans was $167.3 million, or 1.69% of total loans receivable, as of December 31, 2020, compared to $168.0 million, or 1.65% of total loans receivable as of September 30, 2020 and $100.6 million or 1.08% of total loans receivable as of December 31, 2019.
• A $1.2 million provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $13.3 million as of December 31, 2020, compared to $12.1 million as of September 30, 2020 and $2.7 million as of December 31, 2019.
• Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 3% to $11.65 billion at December 31, 2020, compared to $11.30 billion at September 30, 2020, and increased 31% compared to $8.93 billion a year ago. Core deposits represented 93% of total deposits at December 31, 2020.
• Dividends to shareholders were $0.41 per share in the quarter ended December 31, 2020.
• Common shareholders’ equity per share increased 1% to $47.39 at December 31, 2020, compared to $46.83 at the preceding quarter end, and increased 6% from $44.59 a year ago.
• Tangible common shareholders’ equity per share* increased 2% to $36.17 at December 31, 2020, compared to $35.56 at the preceding quarter end, and increased 9% from $33.33 a year ago.

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

Significant Recent Initiatives and Events

On December 11, 2020, Banner completed the consolidation of 15 branches and on September 25, 2020, Banner completed the consolidation of six branches. As a result, Banner recorded expenses associated with these branch consolidations of $1.7 million and $2.1 million, during the fourth quarter of 2020 and year ended December 31, 2020, respectively. Client adoption of mobile and digital banking accelerated beginning in the second quarter and has continued since, while physical branch transaction volume declined. Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic social distancing related restrictions have ended.

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 during 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 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 $121.4 million in the fourth quarter of 2020, compared to $121.0 million in the preceding quarter and $119.5 million in the fourth quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.64% for the fourth quarter of 2020, a 8 basis-point decrease compared to 3.72% in the preceding quarter and a 62 basis-point decrease compared to 4.26% in the fourth quarter a year ago.

“The low interest rate environment continues to put downward pressure on loan yields. Additionally, the impact of growth in core deposits, resulting in significant growth in low yielding short term investments, adversely impacted our net interest margin,” said Grescovich. Acquisition accounting adjustments added five basis points to the net interest margin in the current quarter, seven basis points in the preceding quarter and eight basis points in the fourth quarter a year ago. The total purchase discount for acquired loans was $16.1 million at December 31, 2020, compared to $17.9 million at September 30, 2020, and $25.0 million at December 31, 2019. For the year ended December 31, 2020, Banner’s net interest margin on a tax equivalent basis was 3.85% compared to 4.35% in 2019.

Average interest-earning asset yields decreased 11 basis points to 3.87% in the fourth quarter compared to 3.98% for the preceding quarter and decreased 88 basis points compared to 4.75% in the fourth quarter a year ago. Average loan yields increased six basis points to 4.53% compared to 4.47% in the preceding quarter and decreased 65 basis points compared to 5.18% in the fourth quarter a year ago. The increase in loan yields during the current quarter compared to the preceding quarter was primarily the result of the decline in low yielding SBA PPP loans due to loan repayments from SBA loan forgiveness commencing in the fourth quarter. Loan discount accretion added seven basis points to loan yields in the fourth quarter of 2020, compared to nine basis points in the preceding quarter and 11 basis points in the fourth quarter a year ago. Deposit costs were 0.14% in the fourth quarter of 2020, a three basis-point decrease compared to the preceding quarter and a 26 basis-point decrease compared to the fourth 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 0.24% during the fourth quarter of 2020, a three basis-point decrease compared to the preceding quarter and a 28 basis-point decrease compared to the fourth quarter a year ago.

Banner recorded a $601,000 recapture to its provision for credit losses in the current quarter, compared to a $13.6 million provision for credit losses in the prior quarter and a $4.0 million provision for loan losses in the fourth quarter a year ago, as calculated under the prior incurred loss methodology. The recapture of provision for the current quarter primarily reflects the decrease in loan balances while the provision for credit losses recorded in the preceding quarter primarily reflected the deterioration in forecasted economic indicators as a result of the COVID-19 pandemic and for both periods the economic outlook that existed at their respective quarter end.

Total non-interest income was $23.5 million in the fourth quarter of 2020, compared to $28.2 million in the preceding quarter and $20.3 million in the fourth quarter a year ago. Deposit fees and other service charges were $8.3 million in the fourth quarter of 2020, compared to $8.7 million in the preceding quarter and $9.6 million in the fourth quarter a year ago. The decrease in deposit fees and other service charges from the fourth 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, decreased to $10.7 million in the fourth quarter, compared to $16.6 million in the preceding quarter and increased from $6.2 million in the fourth quarter of 2019. The lower mortgage banking revenue quarter-over-quarter primarily reflects seasonal volume decreases as well as a decrease in the gain on sale spread on one- to four-family held for sale loans along with lower multifamily loan sales. The increases compared to the fourth 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 an increase in the gain on sale spreads on one- to four-family held for sale loans partially offset by lower gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 51% of one- to four-family mortgage loan originations in the fourth quarter of 2020, compared to 56% in both the prior quarter and in the fourth quarter of 2019. For the year ended December 31, 2020, total non-interest income increased 20% to $98.6 million, compared to $81.9 million in 2019.

Banner’s fourth quarter 2020 results included a $1.7 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 $197,000 net gain on the sale of securities. In the preceding quarter, results included a $37,000 net gain for fair value adjustments and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of Visa Class B shares held by Banner. In the fourth quarter a year ago, results included a $36,000 net loss for fair value adjustments and a $62,000 net gain on the sale of securities.

Banner’s total revenue decreased 3% to $144.9 million for the fourth quarter of 2020, compared to $149.2 million in the preceding quarter, and increased 4% compared to $139.8 million in the fourth quarter a year ago. For the year, total revenues increased 5% to $579.9 million compared to $550.9 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 $143.0 million in the fourth quarter of 2020, compared to $148.6 million in the preceding quarter and $139.7 million in the fourth quarter of 2019. For the year ended December 31, 2020, adjusted revenue* was $579.6 million, compared to $551.0 million for the year ended December 31, 2019.

Total non-interest expense was $96.8 million in the fourth quarter of 2020, compared to $91.6 million in the preceding quarter and $93.7 million in the fourth quarter of 2019. The increase in non-interest expense for the current quarter compared to the prior quarter and the fourth quarter a year ago reflects expenses associated with branch consolidations, primarily included in the salary and employee benefits and occupancy and equipment expense categories. The increase in non-interest expense for the current quarter compared to the prior quarter and the same quarter a year ago also reflects a $2.5 million accrual related to pending litigation as well as an increase in advertising and marketing expenses. The year-over-year quarterly 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 $1.2 million of provision for credit losses - unfunded loan commitments compared to a $1.5 million provision for the prior quarter and no provision for the year ago quarter. The year-over-year quarterly increase also reflects increased salary and employee benefits expense, partially offset by increased capitalized loan origination costs and lower miscellaneous non-interest expense as the fourth quarter of 2019 included $735,000 of expense related to the prepayment of $150 million of FHLB advances. The year-over-year quarterly decrease in merger and acquisition-related expenses partially offset these increases. Merger and acquisition-related expenses were $579,000 for the fourth quarter of 2020, compared to $5,000 for the preceding quarter and $4.4 million in the fourth quarter a year ago. For the year, total non-interest expense was $373.1 million, compared to $357.7 million for the year 2019. Banner’s efficiency ratio was 66.76% for the current quarter, compared to 61.35% in the preceding quarter and 67.03% in the year ago quarter. Banner’s adjusted efficiency ratio* was 64.31% for the current quarter, compared to 58.02% in the preceding quarter and 61.19% in the year ago quarter.

For the fourth quarter of 2020, Banner had $9.8 million in state and federal income tax expense for an effective tax rate of 20.2%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 3% to $15.03 billion at December 31, 2020, compared to $14.64 billion at September 30, 2020, and increased 19% when compared to $12.60 billion at December 31, 2019. The total of securities and interest-bearing deposits held at other banks was $3.69 billion at December 31, 2020, compared to $2.63 billion at September 30, 2020 and $1.89 billion at December 31, 2019. The average effective duration of Banner's securities portfolio was approximately 3.6 years at December 31, 2020, compared to 3.5 years at December 31, 2019.

Net loans receivable decreased 3% to $9.70 billion at December 31, 2020, compared to $10.00 billion at September 30, 2020, and increased 5% when compared to $9.20 billion at December 31, 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 December 31, 2020. Commercial real estate and multifamily real estate loans decreased to $4.03 billion at December 31, 2020, compared to $4.07 billion at September 30, 2020, and increased 1% compared to $4.01 billion a year ago. Commercial business loans decreased 6% to $2.92 billion at December 31, 2020, primarily reflecting SBA repayments from the forgiveness of SBA PPP loans during the quarter, compared to $3.11 billion at September 30, 2020, and increased 37% compared to $2.14 billion a year ago primarily due to SBA PPP loans. Agricultural business loans decreased to $299.9 million at December 31, 2020, compared to $326.2 million three months earlier and $337.3 million a year ago. Total construction, land and land development loans were $1.29 billion at December 31, 2020, a 2% increase from $1.27 billion at September 30, 2020, and a 5% increase compared to $1.23 billion a year earlier. Consumer loans decreased to $605.8 million at December 31, 2020, compared to $622.8 million at September 30, 2020, and $664.3 million a year ago. One- to four-family loans decreased to $717.9 million at December 31, 2020, reflecting held for investment loans being refinanced and sold as held for sale loans, compared to $771.4 million at September 30, 2020, and $925.5 million a year ago.

Loans held for sale were $243.8 million at December 31, 2020, compared to $185.9 million at September 30, 2020, and $210.4 million at December 31, 2019. The volume of one- to four- family residential mortgage loans sold was $356.6 million in the current quarter, compared to $327.7 million in the preceding quarter and $268.1 million in the fourth quarter a year ago. During the fourth quarter of 2020, Banner sold $10.4 million in multifamily loans compared to $108.6 million in the preceding quarter and $103.4 million in the fourth quarter a year ago.

Total deposits increased 3% to $12.57 billion at December 31, 2020, compared to $12.22 billion at September 30, 2020, and increased 25% when compared to $10.05 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending. Non-interest-bearing account balances increased 1% to $5.49 billion at December 31, 2020, compared to $5.41 billion at September 30, 2020, and increased 39% compared to $3.95 billion a year ago. Core deposits increased 3% from the prior quarter and increased 31% compared to a year ago and represented 93% of total deposits at both December 31, 2020 and September 30, 2020. Certificates of deposit decreased slightly to $915.3 million at December 31, 2020, compared to $915.4 million at September 30, 2020, and decreased 18% compared to $1.12 billion a year earlier. Banner had no brokered deposits at December 31, 2020 or September 30, 2020, compared to $202.9 million a year ago. FHLB borrowings totaled $150.0 million at both December 31, 2020 and September 30, 2020, and $450.0 million a year ago.

At December 31, 2020, total common shareholders’ equity was $1.67 billion, or 11.09% of assets, compared to $1.65 billion or 11.25% of assets at September 30, 2020, and $1.59 billion or 12.65% of assets a year ago. At December 31, 2020, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.27 billion, or 8.69% of tangible assets*, compared to $1.25 billion, or 8.78% of tangible assets, at September 30, 2020, and $1.19 billion, or 9.77% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $36.17 at December 31, 2020, compared to $33.33 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 December 31, 2020, Banner's common equity Tier 1 capital ratio was 11.25%, its Tier 1 leverage capital to average assets ratio was 9.50%, and its total capital to risk-weighted assets ratio was 14.73%.

Credit Quality

The allowance for credit losses - loans was $167.3 million at December 31, 2020, or 1.69% of total loans receivable outstanding and 470% of non-performing loans, compared to $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, and $100.6 million at December 31, 2019, or 1.08% of total loans receivable outstanding and 254% 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 $13.3 million at December 31, 2020, compared to $12.1 million at September 30, 2020 and $2.7 million at December 31, 2019. Net loan charge-offs totaled $93,000 in the fourth quarter of 2020, compared to net loan charge-offs of $2.0 million in the preceding quarter and $1.2 million of net charge-offs in the fourth quarter a year ago. Banner recorded a $601,000 recapture of provision for credit losses in the current quarter, compared to a $13.6 million provision for credit losses in the prior quarter and a $4.0 million provision for loan losses in the year ago quarter. The recapture of provision for the current quarter primarily reflects the decrease in loan balances while the provision for credit losses recorded in the preceding quarter primarily reflected the deterioration in forecasted economic indicators, as a result of the COVID-19 pandemic, and for both periods the economic outlook that existed at their respective quarter end. Non-performing loans were $35.6 million at December 31, 2020, compared to $34.8 million at September 30, 2020, and $39.6 million a year ago. Real estate owned and other repossessed assets were $867,000 at December 31, 2020, compared to $1.8 million at September 30, 2020, and $936,000 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 December 31, 2020, the total purchase discount for acquired loans was $16.1 million.

Banner’s total substandard loans were $340.2 million at December 31, 2020, compared to $423.2 million at September 30, 2020, and $113.4 million a year ago. The quarter over quarter decrease reflects the payoff of substandard loans as well as risk rating upgrades as certain industries impacted by the COVID-19 pandemic have begun to stabilize.

Banner’s total non-performing assets were $36.5 million, or 0.24% of total assets, at December 31, 2020, compared to $36.7 million, or 0.25% of total assets, at September 30, 2020, and $40.5 million, or 0.32% of total assets, a year ago.

Conference Call

Banner will host a conference call on Friday, January 22, 2021, at 8:00 a.m. PST, to discuss its fourth quarter and 2020 results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial [phone] to participate in the call. A replay will be available for one week at [phone] using access code 10150695, or at www.bannerbank.com.

About the Company

Banner Corporation is a $15.03 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															Twelve Months Ended
(in thousands except shares and per share data)		Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Dec 31, 2020					Dec 31, 2019
INTEREST INCOME:
Loans receivable		$	115,545				$	116,716				$	120,915				$	466,360				$	471,473
Mortgage-backed securities		7,438					7,234					8,924					31,792					38,640
Securities and cash equivalents		6,170					5,631					3,570					20,994					15,574
		129,153					129,581					133,409					519,146					525,687
INTEREST EXPENSE:
Deposits		4,392					5,179					9,950					25,015					37,630
Federal Home Loan Bank advances		987					988					2,281					5,023					12,234
Other borrowings		121					128					121					603					330
Junior subordinated debentures and subordinated notes		2,216					2,260					1,566					7,204					6,574
		7,716					8,555					13,918					37,845					56,768
Net interest income before (recapture)/provision for credit losses		121,437					121,026					119,491					481,301					468,919
(RECAPTURE)/PROVISION FOR CREDIT LOSSES		(601		)			13,641					4,000					64,316					10,000
Net interest income		122,038					107,385					115,491					416,985					458,919
NON-INTEREST INCOME:
Deposit fees and other service charges		8,293					8,742					9,637					34,384					46,632
Mortgage banking operations		10,690					16,562					6,248					51,581					22,215
Bank-owned life insurance		1,319					1,286					1,170					5,972					4,645
Miscellaneous		1,306					951					3,201					6,323					8,624
		21,608					27,541					20,256					98,260					82,116
Net gain on sale of securities		197					644					62					1,012					33
Net change in valuation of financial instruments carried at fair value		1,704					37					(36		)			(656		)			(208		)
Total non-interest income		23,509					28,222					20,282					98,616					81,941
NON-INTEREST EXPENSE:
Salary and employee benefits		60,906					61,171					57,050					245,400					226,409
Less capitalized loan origination costs		(9,415		)			(8,517		)			(8,797		)			(34,848		)			(28,934		)
Occupancy and equipment		14,248					13,022					13,377					53,362					52,390
Information / computer data services		6,402					6,090					6,202					24,386					22,458
Payment and card processing services		3,960					4,044					4,638					16,095					16,993
Professional and legal expenses		5,643					2,368					2,262					12,093					9,736
Advertising and marketing		2,828					1,105					2,021					6,412					7,836
Deposit insurance expense		1,548					1,628					1,608					6,516					2,840
State/municipal business and use taxes		1,071					1,196					917					4,355					3,880
Real estate operations		(283		)			(11		)			40					(190		)			303
Amortization of core deposit intangibles		1,865					1,864					2,061					7,732					8,151
Provision for credit losses - unfunded loan commitments		1,203					1,539					—					3,559					—
Miscellaneous		5,871					5,285					7,892					22,712					28,122
		95,847					90,784					89,271					367,584					350,184
COVID-19 expenses		333					778					—					3,502					—
Merger and acquisition-related expenses		579					5					4,419					2,062					7,544
Total non-interest expense		96,759					91,567					93,690					373,148					357,728
Income before provision for income taxes		48,788					44,040					42,083					142,453					183,132
PROVISION FOR INCOME TAXES		9,831					7,492					8,428					26,525					36,854
NET INCOME		$	38,957				$	36,548				$	33,655				$	115,928				$	146,278
Earnings per share available to common shareholders:
Basic		$	1.11				$	1.04				$	0.96				$	3.29				$	4.20
Diluted		$	1.10				$	1.03				$	0.95				$	3.26				$	4.18
Cumulative dividends declared per common share		$	0.41				$	0.41				$	1.41				$	1.23				$	2.64
Weighted average common shares outstanding:
Basic		35,200,769					35,193,109					35,188,399					35,264,252					34,868,434
Diluted		35,425,810					35,316,679					35,316,736					35,528,848					34,967,684
Increase (decrease) in common shares outstanding		632					669					1,578,219					(592,376		)			568,804

FINANCIAL CONDITION																	Percentage Change
(in thousands except shares and per share data)		Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Prior Qtr				Prior Yr Qtr
ASSETS
Cash and due from banks		$	311,899				$	289,144				$	234,359				7.9		%		33.1		%
Interest-bearing deposits		922,284					416,394					73,376					121.5		%		1,156.9		%
Total cash and cash equivalents		1,234,183					705,538					307,735					74.9		%		301.1		%
Securities - trading		24,980					23,276					25,636					7.3		%		(2.6	)	%
Securities - available for sale		2,322,593					1,758,384					1,551,557					32.1		%		49.7		%
Securities - held to maturity		421,713					429,033					236,094					(1.7	)	%		78.6		%
Total securities		2,769,286					2,210,693					1,813,287					25.3		%		52.7		%
Equity securities		—					450,255					—					(100.0	)	%		nm
Federal Home Loan Bank stock		16,358					16,363					28,342					—		%		(42.3	)	%
Loans held for sale		243,795					185,938					210,447					31.1		%		15.8		%
Loans receivable		9,870,982					10,163,917					9,305,357					(2.9	)	%		6.1		%
Allowance for credit losses - loans		(167,279		)			(167,965		)			(100,559		)			(0.4	)	%		66.3		%
Net loans receivable		9,703,703					9,995,952					9,204,798					(2.9	)	%		5.4		%
Accrued interest receivable		46,617					48,321					37,962					(3.5	)	%		22.8		%
Real estate owned held for sale, net		816					1,795					814					(54.5	)	%		0.2		%
Property and equipment, net		164,556					171,576					178,008					(4.1	)	%		(7.6	)	%
Goodwill		373,121					373,121					373,121					—		%		—		%
Other intangibles, net		21,426					23,291					29,158					(8.0	)	%		(26.5	)	%
Bank-owned life insurance		191,830					191,755					192,088					—		%		(0.1	)	%
Other assets		265,932					267,477					228,271					(0.6	)	%		16.5		%
Total assets		$	15,031,623				$	14,642,075				$	12,604,031				2.7		%		19.3		%
LIABILITIES
Deposits:
Non-interest-bearing		$	5,492,924				$	5,412,570				$	3,945,000				1.5		%		39.2		%
Interest-bearing transaction and savings accounts		6,159,052					5,887,419					4,983,238					4.6		%		23.6		%
Interest-bearing certificates		915,320					915,352					1,120,403					—		%		(18.3	)	%
Total deposits		12,567,296					12,215,341					10,048,641					2.9		%		25.1		%
Advances from Federal Home Loan Bank		150,000					150,000					450,000					—		%		(66.7	)	%
Customer repurchase agreements and other borrowings		184,785					176,983					118,474					4.4		%		56.0		%
Subordinated notes, net		98,201					98,114					—					0.1		%		nm
Junior subordinated debentures at fair value		116,974					109,821					119,304					6.5		%		(2.0	)	%
Accrued expenses and other liabilities		202,643					200,038					227,889					1.3		%		(11.1	)	%
Deferred compensation		45,460					45,249					45,689					0.5		%		(0.5	)	%
Total liabilities		13,365,359					12,995,546					11,009,997					2.8		%		21.4		%
SHAREHOLDERS’ EQUITY
Common stock		1,349,879					1,347,612					1,373,940					0.2		%		(1.8	)	%
Retained earnings		247,316					222,959					186,838					10.9		%		32.4		%
Other components of shareholders’ equity		69,069					75,958					33,256					(9.1	)	%		107.7		%
Total shareholders’ equity		1,666,264					1,646,529					1,594,034					1.2		%		4.5		%
Total liabilities and shareholders’ equity		$	15,031,623				$	14,642,075				$	12,604,031				2.7		%		19.3		%
Common Shares Issued:
Shares outstanding at end of period		35,159,200					35,158,568					35,751,576
Common shareholders’ equity per share (1)		$	47.39				$	46.83				$	44.59
Common shareholders’ tangible equity per share (1) (2)		$	36.17				$	35.56				$	33.33
Common shareholders’ tangible equity to tangible assets (2)		8.69			%		8.78			%		9.77			%
Consolidated Tier 1 leverage capital ratio		9.50			%		9.56			%		10.71			%

(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		Dec 31, 2020				Sep 30, 2020				Dec 31, 2019				Prior Qtr				Prior Yr Qtr
Commercial real estate:
Owner-occupied		$	1,076,467			$	1,049,877			$	980,021			2.5		%		9.8		%
Investment properties		1,955,684				1,991,258				2,024,988				(1.8	)	%		(3.4	)	%
Small balance CRE		573,849				597,971				613,484				(4.0	)	%		(6.5	)	%
Multifamily real estate		428,223				426,659				388,388				0.4		%		10.3		%
Construction, land and land development:
Commercial construction		228,937				220,285				210,668				3.9		%		8.7		%
Multifamily construction		305,527				291,105				233,610				5.0		%		30.8		%
One- to four-family construction		507,810				518,085				544,308				(2.0	)	%		(6.7	)	%
Land and land development		248,915				240,803				245,530				3.4		%		1.4		%
Commercial business:
Commercial business		2,178,461				2,343,619				1,364,650				(7.0	)	%		59.6		%
Small business scored		743,451				763,824				772,657				(2.7	)	%		(3.8	)	%
Agricultural business, including secured by farmland		299,949				326,169				337,271				(8.0	)	%		(11.1	)	%
One- to four-family residential		717,939				771,431				925,531				(6.9	)	%		(22.4	)	%
Consumer:
Consumer—home equity revolving lines of credit		491,812				504,523				519,336				(2.5	)	%		(5.3	)	%
Consumer—other		113,958				118,308				144,915				(3.7	)	%		(21.4	)	%
Total loans receivable		$	9,870,982			$	10,163,917			$	9,305,357			(2.9	)	%		6.1		%
Restructured loans performing under their restructured terms		$	6,673			$	5,790			$	6,466
Loans 30 - 89 days past due and on accrual		$	12,291			$	18,158			$	20,178
Total delinquent loans (including loans on non-accrual), net		$	36,131			$	37,464			$	38,322
Total delinquent loans / Total loans receivable		0.37		%		0.37		%		0.41		%

LOANS BY GEOGRAPHIC LOCATION																	Percentage Change
		Dec 31, 2020							Sep 30, 2020				Dec 31, 2019				Prior Qtr				Prior Yr Qtr
		Amount				Percentage			Amount				Amount
Washington		$	4,647,553			47.0	%		$	4,767,113			$	4,364,764			(2.5	)	%		6.5		%
California		2,279,749				23.1	%		2,316,739				2,129,789				(1.6	)	%		7.0		%
Oregon		1,792,156				18.2	%		1,858,465				1,650,704				(3.6	)	%		8.6		%
Idaho		537,996				5.5	%		576,983				530,016				(6.8	)	%		1.5		%
Utah		80,704				0.8	%		76,314				60,958				5.8		%		32.4		%
Other		532,824				5.4	%		568,303				569,126				(6.2	)	%		(6.4	)	%
Total loans receivable		$	9,870,982			100.0	%		$	10,163,917			$	9,305,357			(2.9	)	%		6.1		%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending December 31, 2020, September 30, 2020, and December 31, 2019 and the twelve months ending December 31, 2020 and December 31, 2019 (in thousands).

LOAN ORIGINATIONS	Quarters Ended												Twelve Months Ended
	Dec 31, 2020				Sep 30, 2020				Dec 31, 2019				Dec 31, 2020				Dec 31, 2019
Commercial real estate	$	93,838			$	74,400			$	165,064			$	356,361			$	428,936
Multifamily real estate	7,900				2,664				20,035				27,119				71,124
Construction and land	515,280				412,463				530,193				1,588,311				1,433,313
Commercial business:
Commercial business	133,112				128,729				228,050				628,981				840,237
SBA PPP	—				24,848				—				1,176,018				—
Agricultural business	11,552				16,990				25,993				76,096				85,663
One-to four-family residential	28,402				32,733				30,432				116,713				112,165
Consumer	97,416				132,100				70,539				423,526				350,601
Total loan originations (excluding loans held for sale)	$	887,500			$	824,927			$	1,070,306			$	4,393,125			$	3,322,039

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Quarters Ended															Twelve Months Ended
CHANGE IN THE		Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Dec 31, 2020					Dec 31, 2019
ALLOWANCE FOR CREDIT LOSSES - LOANS
Balance, beginning of period		$	167,965				$	156,352				$	97,801				$	100,559				$	96,485
Beginning balance adjustment for adoption of ASC 326		—					—					—					7,812					—
(Recapture)/provision for credit losses - loans		(593		)			13,641					4,000					64,285					10,000
Recoveries of loans previously charged off:
Commercial real estate		31					23					199					275					476
Construction and land		—					—					—					105					208
One- to four-family real estate		194					94					159					467					561
Commercial business		2,444					246					225					3,265					625
Agricultural business, including secured by farmland		51					—					10					1,823					47
Consumer		90					82					61					328					548
		2,810					445					654					6,263					2,465
Loans charged off:
Commercial real estate		(1,375		)			(379		)			—					(1,854		)			(1,138		)
Multifamily real estate		—					—					—					(66		)			—
Construction and land		—					—					(45		)			(100		)			(45		)
One- to four-family real estate		—					(72		)			—					(136		)			(86		)
Commercial business		(1,019		)			(1,297		)			(1,180		)			(7,253		)			(4,171		)
Agricultural business, including secured by farmland		(37		)			(492		)			(4		)			(591		)			(911		)
Consumer		(472		)			(233		)			(667		)			(1,640		)			(2,040		)
		(2,903		)			(2,473		)			(1,896		)			(11,640		)			(8,391		)
Net charge-offs		(93		)			(2,028		)			(1,242		)			(5,377		)			(5,926		)
Balance, end of period		$	167,279				$	167,965				$	100,559				$	167,279				$	100,559
Net charge-offs / Average loans receivable		(0.001		)	%		(0.019		)	%		(0.013		)	%		(0.053		)			(0.066		)	%

ALLOCATION OF
ALLOWANCE FOR CREDIT LOSSES - LOANS		Dec 31, 2020				Sep 30, 2020				Dec 31, 2019
Specific or allocated credit loss allowance:
Commercial real estate		$	57,791			$	59,705			$	30,591
Multifamily real estate		3,893				3,256				4,754
Construction and land		41,295				39,477				22,994
One- to four-family real estate		9,913				12,868				4,136
Commercial business		35,007				35,369				23,370
Agricultural business, including secured by farmland		4,914				5,051				4,120
Consumer		14,466				12,239				8,202
Total allocated		167,279				167,965				98,167
Unallocated		—				—				2,392
Total allowance for credit losses - loans		$	167,279			$	167,965			$	100,559
Allowance for credit losses - loans / Total loans receivable		1.69		%		1.65		%		1.08		%
Allowance for credit losses - loans / Non-performing loans		470		%		482		%		254		%

		Quarters Ended												Twelve Months Ended
CHANGE IN THE		Dec 31, 2020				Sep 30, 2020				Dec 31, 2019				Dec 31, 2020				Dec 31, 2019
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS
Balance, beginning of period		$	12,094			$	10,555			$	2,599			$	2,716			$	2,599
Beginning balance adjustment for adoption of ASC 326		—				—				—				7,022				—
Provision for credit losses - unfunded loan commitments		1,203				1,539				—				3,559				—
Additions through acquisitions		—				—				117				—				117
Balance, end of period		$	13,297			$	12,094			$	2,716			$	13,297			$	2,716

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
	Dec 31, 2020				Sep 30, 2020				Dec 31, 2019
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial	$	18,199			$	7,824			$	5,952
Multifamily	—				—				85
Construction and land	936				937				1,905
One- to four-family	3,556				2,978				3,410
Commercial business	5,407				14,867				23,015
Agricultural business, including secured by farmland	1,743				2,066				661
Consumer	2,719				2,896				2,473
	32,560				31,568				37,501
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial	—				—				89
Construction and land	—				—				332
One- to four-family	1,899				2,649				877
Commercial business	1,025				425				401
Consumer	130				181				398
	3,054				3,255				2,097
Total non-performing loans	35,614				34,823				39,598
Real estate owned (REO)	816				1,795				814
Other repossessed assets	51				37				122
Total non-performing assets	$	36,481			$	36,655			$	40,534
Total non-performing assets to total assets	0.24		%		0.25		%		0.32		%

	Dec 31, 2020				Sep 30, 2020				Dec 31, 2019
LOANS BY CREDIT RISK RATING
Pass	$	9,494,147			$	9,699,098			$	9,130,662
Special Mention	36,598				41,575				61,189
Substandard	340,237				423,244				113,448
Doubtful	—				—				58
Total	$	9,870,982			$	10,163,917			$	9,305,357

	Quarters Ended															Twelve Months Ended
REAL ESTATE OWNED	Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Dec 31, 2020					Dec 31, 2019
Balance, beginning of period	$	1,795				$	2,400				$	228				$	814				$	2,611
Additions from loan foreclosures	—					—					—					1,588					109
Additions from acquisitions	—					—					650					—					650
Proceeds from dispositions of REO	(1,555		)			(707		)			(105		)			(2,360		)			(2,588		)
Gain (loss) on sale of REO	603					120					41					819					32
Valuation adjustments in the period	(27		)			(18		)			—					(45		)			—
Balance, end of period	$	816				$	1,795				$	814				$	816				$	814

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSIT COMPOSITION														Percentage Change
		Dec 31, 2020				Sep 30, 2020				Dec 31, 2019				Prior Qtr			Prior Yr Qtr
Non-interest-bearing		$	5,492,924			$	5,412,570			$	3,945,000			1.5	%		39.2		%
Interest-bearing checking		1,569,435				1,434,224				1,280,003				9.4	%		22.6		%
Regular savings accounts		2,398,482				2,332,287				1,934,041				2.8	%		24.0		%
Money market accounts		2,191,135				2,120,908				1,769,194				3.3	%		23.8		%
Total interest-bearing transaction and savings accounts		6,159,052				5,887,419				4,983,238				4.6	%		23.6		%
Total core deposits		11,651,976				11,299,989				8,928,238				3.1	%		30.5		%
Interest-bearing certificates		915,320				915,352				1,120,403				—	%		(18.3	)	%
Total deposits		$	12,567,296			$	12,215,341			$	10,048,641			2.9	%		25.1		%

GEOGRAPHIC CONCENTRATION OF DEPOSITS
		Dec 31, 2020							Sep 30, 2020				Dec 31, 2019				Percentage Change
		Amount				Percentage			Amount				Amount				Prior Qtr				Prior Yr Qtr
Washington		$	7,058,404			56.2	%		$	6,820,329			$	5,861,809			3.5		%		20.4	%
Oregon		2,604,908				20.7	%		2,486,760				2,006,163				4.8		%		29.8	%
California		2,237,949				17.8	%		2,254,681				1,698,289				(0.7	)	%		31.8	%
Idaho		666,035				5.3	%		653,571				482,380				1.9		%		38.1	%
Total deposits		$	12,567,296			100.0	%		$	12,215,341			$	10,048,641			2.9		%		25.1	%

INCLUDED IN TOTAL DEPOSITS		Dec 31, 2020				Sep 30, 2020				Dec 31, 2019
Public non-interest-bearing accounts		$	175,352			$	142,415			$	111,015
Public interest-bearing transaction & savings accounts		127,523				117,514				133,403
Public interest-bearing certificates		59,127				54,219				35,184
Total public deposits		$	362,002			$	314,148			$	279,602
Total brokered deposits		$	—			$	—			$	202,884

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 DECEMBER 31, 2020		Amount				Ratio			Amount				Ratio			Amount				Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets		$	1,608,387			14.73	%		$	873,472			8.00	%		$	1,091,840			10.00	%
Tier 1 capital to risk-weighted assets		1,371,736				12.56	%		655,104				6.00	%		655,104				6.00	%
Tier 1 leverage capital to average assets		1,371,736				9.50	%		577,331				4.00	%		n/a				n/a
Common equity tier 1 capital to risk-weighted assets		1,228,236				11.25	%		491,328				4.50	%		n/a				n/a
Banner Bank:
Total capital to risk-weighted assets		1,438,012				13.39	%		859,260				8.00	%		1,074,075				10.00	%
Tier 1 capital to risk-weighted assets		1,303,590				12.14	%		644,445				6.00	%		859,260				8.00	%
Tier 1 leverage capital to average assets		1,303,590				9.22	%		565,620				4.00	%		707,025				5.00	%
Common equity tier 1 capital to risk-weighted assets		1,303,590				12.14	%		483,334				4.50	%		698,149				6.50	%
Islanders Bank:
Total capital to risk-weighted assets		29,333				15.65	%		14,997				8.00	%		18,747				10.00	%
Tier 1 capital to risk-weighted assets		26,983				14.39	%		11,248				6.00	%		14,997				8.00	%
Tier 1 leverage capital to average assets		26,983				7.87	%		13,720				4.00	%		17,150				5.00	%
Common equity tier 1 capital to risk-weighted assets		26,983				14.39	%		8,436				4.50	%		12,185				6.50	%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREAD	Quarters Ended
	December 31, 2020											September 30, 2020											December 31, 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	$	110,414			$	976			3.52	%		$	161,385			$	1,535			3.78	%		$	202,686			$	2,048			4.01	%
Mortgage loans	7,251,101				84,634				4.64	%		7,339,181				88,011				4.77	%		7,134,231				93,653				5.21	%
Commercial/agricultural loans	2,752,352				29,145				4.21	%		2,862,291				26,396				3.67	%		1,853,447				23,829				5.10	%
Consumer and other loans	135,498				2,057				6.04	%		140,493				2,195				6.22	%		169,197				2,685				6.30	%
Total loans(1)(3)	10,249,365				116,812				4.53	%		10,503,350				118,137				4.47	%		9,359,561				122,215				5.18	%
Mortgage-backed securities	1,429,635				7,536				2.10	%		1,250,759				7,333				2.33	%		1,371,438				9,024				2.61	%
Other securities	975,166				6,634				2.71	%		884,916				6,036				2.71	%		418,767				3,032				2.87	%
Equity securities	234,822				64				0.11	%		379,483				186				0.19	%		—				—				—	%
Interest-bearing deposits with banks	611,234				219				0.14	%		171,894				123				0.28	%		107,959				531				1.95	%
FHLB stock	16,361				162				3.94	%		16,363				163				3.96	%		26,036				376				5.73	%
Total investment securities (3)	3,267,218				14,615				1.78	%		2,703,415				13,841				2.04	%		1,924,200				12,963				2.67	%
Total interest-earning assets	13,516,583				131,427				3.87	%		13,206,765				131,978				3.98	%		11,283,761				135,178				4.75	%
Non-interest-earning assets	1,349,055											1,259,816											1,152,751
Total assets	$	14,865,638										$	14,466,581										$	12,436,512
Deposits:
Interest-bearing checking accounts	$	1,483,183			315				0.08	%		$	1,413,085			321				0.09	%		$	1,228,936			564				0.18	%
Savings accounts	2,375,015				691				0.12	%		2,251,294				813				0.14	%		1,999,656				2,027				0.40	%
Money market accounts	2,165,960				1,047				0.19	%		2,096,037				1,224				0.23	%		1,607,954				2,842				0.70	%
Certificates of deposit	916,286				2,339				1.02	%		966,028				2,821				1.16	%		1,189,530				4,517				1.51	%
Total interest-bearing deposits	6,940,444				4,392				0.25	%		6,726,444				5,179				0.31	%		6,026,076				9,950				0.66	%
Non-interest-bearing deposits	5,499,240				—				—	%		5,340,688				—				—	%		3,959,097				—				—	%
Total deposits	12,439,684				4,392				0.14	%		12,067,132				5,179				0.17	%		9,985,173				9,950				0.40	%
Other interest-bearing liabilities:
FHLB advances	150,000				987				2.62	%		150,000				988				2.62	%		387,435				2,281				2.34	%
Other borrowings	187,560				121				0.26	%		177,628				128				0.29	%		126,782				121				0.38	%
Junior subordinated debentures and subordinated notes	247,944				2,216				3.56	%		247,944				2,260				3.63	%		145,339				1,566				4.27	%
Total borrowings	585,504				3,324				2.26	%		575,572				3,376				2.33	%		659,556				3,968				2.39	%
Total funding liabilities	13,025,188				7,716				0.24	%		12,642,704				8,555				0.27	%		10,644,729				13,918				0.52	%
Other non-interest-bearing liabilities(2)	195,965											193,256											189,682
Total liabilities	13,221,153											12,835,960											10,834,411
Shareholders’ equity	1,644,485											1,630,621											1,602,101
Total liabilities and shareholders’ equity	$	14,865,638										$	14,466,581										$	12,436,512
Net interest income/rate spread (tax equivalent)					$	123,711			3.63	%						$	123,423			3.71	%						$	121,260			4.23	%
Net interest margin (tax equivalent)									3.64	%										3.72	%										4.26	%
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis					(2,274		)									(2,397		)									(1,769		)
Net interest income and margin, as reported					$	121,437			3.57	%						$	121,026			3.65	%						$	119,491			4.20	%
Additional Key Financial Ratios:
Return on average assets									1.04	%										1.01	%										1.07	%
Return on average equity									9.42	%										8.92	%										8.33	%
Average equity/average assets									11.06	%										11.27	%										12.88	%
Average interest-earning assets/average interest-bearing liabilities									179.60	%										180.86	%										168.78	%
Average interest-earning assets/average funding liabilities									103.77	%										104.46	%										106.00	%
Non-interest income/average assets									0.63	%										0.78	%										0.65	%
Non-interest expense/average assets									2.59	%										2.52	%										2.99	%
Efficiency ratio(4)									66.76	%										61.35	%										67.03	%
Adjusted efficiency ratio(5)									64.31	%										58.02	%										61.19	%

(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 $1.3 million, $1.4 million, and $1.3 million for the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million, $976,000, and $469,000 for the three months ended December 31, 2020, September 30, 2020, and December 31, 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	Twelve Months Ended
	December 31, 2020											December 31, 2019
	Average Balance				Interest and Dividends				Yield/Cost(3)			Average Balance				Interest and Dividends				Yield/Cost(3)
Interest-earning assets:
Held for sale loans	$	144,220			$	5,482			3.80	%		$	126,086			$	5,343			4.24	%
Mortgage loans	7,303,584				352,878				4.83	%		6,911,067				363,241				5.26	%
Commercial/agricultural loans	2,526,177				103,700				4.11	%		1,784,468				95,915				5.37	%
Consumer and other loans	147,827				9,208				6.23	%		176,373				11,230				6.37	%
Total loans(1)(3)	10,121,808				471,268				4.66	%		8,997,994				475,729				5.29	%
Mortgage-backed securities	1,330,355				32,188				2.42	%		1,368,927				38,809				2.83	%
Other securities	777,378				21,839				2.81	%		441,402				13,926				3.15	%
Equity securities	182,846				373				0.20	%		169				8				4.73	%
Interest-bearing deposits with banks	272,725				907				0.33	%		72,579				1,649				2.27	%
FHLB stock	18,952				947				5.00	%		29,509				1,407				4.77	%
Total investment securities(3)	2,582,256				56,254				2.18	%		1,912,586				55,799				2.92	%
Total interest-earning assets	12,704,064				527,522				4.15	%		10,910,580				531,528				4.87	%
Non-interest-earning assets	1,262,170											1,078,108
Total assets	$	13,966,234										$	11,988,688
Deposits:
Interest-bearing checking accounts	$	1,385,252			1,479				0.11	%		$	1,188,985			2,224				0.19	%
Savings accounts	2,194,418				4,257				0.19	%		1,890,467				8,310				0.44	%
Money market accounts	1,996,870				6,275				0.31	%		1,534,909				10,693				0.70	%
Certificates of deposit	1,030,722				13,004				1.26	%		1,175,942				16,403				1.39	%
Total interest-bearing deposits	6,607,262				25,015				0.38	%		5,790,303				37,630				0.65	%
Non-interest-bearing deposits	4,929,768				—				—	%		3,751,878				—				—	%
Total deposits	11,537,030				25,015				0.22	%		9,542,181				37,630				0.39	%
Other interest-bearing liabilities:
FHLB advances	215,093				5,023				2.34	%		477,796				12,234				2.56	%
Other borrowings	193,862				603				0.31	%		122,343				330				0.27	%
Junior subordinated debentures and subordinated notes	198,490				7,204				3.63	%		141,504				6,574				4.65	%
Total borrowings	607,445				12,830				2.11	%		741,643				19,138				2.58	%
Total funding liabilities	12,144,475				37,845				0.31	%		10,283,824				56,768				0.55	%
Other non-interest-bearing liabilities(2)	197,422											164,318
Total liabilities	12,341,897											10,448,142
Shareholders’ equity	1,624,337											1,540,546
Total liabilities and shareholders’ equity	$	13,966,234										$	11,988,688
Net interest income/rate spread (tax equivalent)					$	489,677			3.84	%						$	474,760			4.32	%
Net interest margin (tax equivalent)									3.85	%										4.35	%
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis					(8,376		)									(5,841		)
Net interest income and margin, as reported					$	481,301			3.79	%						$	468,919			4.30	%
Additional Key Financial Ratios:
Return on average assets									0.83	%										1.22	%
Return on average equity									7.14	%										9.50	%
Average equity/average assets									11.63	%										12.85	%
Average interest-earning assets/average interest-bearing liabilities									176.09	%										167.03	%
Average interest-earning assets/average funding liabilities									104.61	%										106.09	%
Non-interest income/average assets									0.71	%										0.68	%
Non-interest expense/average assets									2.67	%										2.98	%
Efficiency ratio(4)									64.35	%										64.94	%
Adjusted efficiency ratio(5)									60.76	%										61.18	%

 

(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 $4.9 million and $4.3 million for the twelve months ended December 31, 2020 and December 31, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.5 million and $1.6 million for the twelve months ended December 31, 2020 and December 31, 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															Twelve Months Ended
	Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Dec 31, 2020					Dec 31, 2019
Net interest income before provision for credit losses	$	121,437				$	121,026				$	119,491				$	481,301				$	468,919
Total non-interest income	23,509					28,222					20,282					98,616					81,941
Total GAAP revenue	144,946					149,248					139,773					579,917					550,860
Exclude net gain on sale of securities	(197		)			(644		)			(62		)			(1,012		)			(33		)
Exclude net change in valuation of financial instruments carried at fair value	(1,704		)			(37		)			36					656					208
Adjusted revenue (non-GAAP)	$	143,045				$	148,567				$	139,747				$	579,561				$	551,035

ADJUSTED EARNINGS		Quarters Ended															Twelve Months Ended
		Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Dec 31, 2020					Dec 31, 2019
Net income (GAAP)		$	38,957				$	36,548				$	33,655				$	115,928				$	146,278
Exclude net gain on sale of securities		(197		)			(644		)			(62		)			(1,012		)			(33		)
Exclude net change in valuation of financial instruments carried at fair value		(1,704		)			(37		)			36					656					208
Exclude merger and acquisition-related expenses		579					5					4,419					2,062					7,544
Exclude COVID-19 expenses		333					778					—					3,502					—
Exclude related net tax expense (benefit)		237					(24		)			(1,074		)			(1,239		)			(1,741		)
Exclude FHLB prepayment penalties		—					—					735					—					735
Total adjusted earnings (non-GAAP)		$	38,205				$	36,626				$	37,709				$	119,897				$	152,991
Diluted earnings per share (GAAP)		$	1.10				$	1.03				$	0.95				$	3.26				$	4.18
Diluted adjusted earnings per share (non-GAAP)		$	1.08				$	1.04				$	1.07				$	3.37				$	4.38

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
ADJUSTED EFFICIENCY RATIO		Quarters Ended															Twelve Months Ended
		Dec 31, 2020					Sep 30, 2020					Dec 31, 2019					Dec 31, 2020					Dec 31, 2019
Non-interest expense (GAAP)		$	96,759				$	91,567				$	93,690				$	373,148				$	357,728
Exclude merger and acquisition-related expenses		(579		)			(5		)			(4,419		)			(2,062		)			(7,544		)
Exclude COVID-19 expenses		(333		)			(778		)			—					(3,502		)			—
Exclude CDI amortization		(1,865		)			(1,864		)			(2,061		)			(7,732		)			(8,151		)
Exclude state/municipal tax expense		(1,071		)			(1,196		)			(917		)			(4,355		)			(3,880		)
Exclude REO operations		283					11					(40		)			190					(303		)
Exclude FHLB prepayment penalties		—					—					(735		)			—					(735		)
Exclude provision for credit losses - unfunded loan commitments		(1,203		)			(1,539		)			—					(3,559		)			—
Adjusted non-interest expense (non-GAAP)		$	91,991				$	86,196				$	85,518				$	352,128				$	337,115
Net interest income before provision for credit losses (GAAP)		$	121,437				$	121,026				$	119,491				$	481,301				$	468,919
Non-interest income (GAAP)		23,509					28,222					20,282					98,616					81,941
Total revenue		144,946					149,248					139,773					579,917					550,860
Exclude net gain on sale of securities		(197		)			(644		)			(62		)			(1,012		)			(33		)
Exclude net change in valuation of financial instruments carried at fair value		(1,704		)			(37		)			36					656					208
Adjusted revenue (non-GAAP)		$	143,045				$	148,567				$	139,747				$	579,561				$	551,035
Efficiency ratio (GAAP)		66.76			%		61.35			%		67.03			%		64.35			%		64.94			%
Adjusted efficiency ratio (non-GAAP)		64.31			%		58.02			%		61.19			%		60.76			%		61.18			%

TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS		Dec 31, 2020				Sep 30, 2020				Dec 31, 2019
Shareholders’ equity (GAAP)		$	1,666,264			$	1,646,529			$	1,594,034
Exclude goodwill and other intangible assets, net		394,547				396,412				402,279
Tangible common shareholders’ equity (non-GAAP)		$	1,271,717			$	1,250,117			$	1,191,755
Total assets (GAAP)		$	15,031,623			$	14,642,075			$	12,604,031
Exclude goodwill and other intangible assets, net		394,547				396,412				402,279
Total tangible assets (non-GAAP)		$	14,637,076			$	14,245,663			$	12,201,752
Common shareholders’ equity to total assets (GAAP)		11.09		%		11.25		%		12.65		%
Tangible common shareholders’ equity to tangible assets (non-GAAP)		8.69		%		8.78		%		9.77		%
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
Tangible common shareholders’ equity (non-GAAP)		$	1,271,717			$	1,250,117			$	1,191,755
Common shares outstanding at end of period		35,159,200				35,158,568				35,751,576
Common shareholders’ equity (book value) per share (GAAP)		$	47.39			$	46.83			$	44.59
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)		$	36.17			$	35.56			$	33.33

 

CONTACT:	MARK J. GRESCOVICH,
	PRESIDENT & CEO
	PETER J. CONNER, CFO
	[phone]