WALLA WALLA, Wash., Oct. 20, 2021 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $49.9 million, or $1.44 per diluted share, for the third quarter of 2021, an 8% decrease compared to $54.4 million, or $1.56 per diluted share, for the second quarter of 2021 and a 36% increase compared to $36.5 million, or $1.03 per diluted share, for the third quarter of 2020. Banner’s third quarter 2021 results include $8.6 million in recapture of provision for credit losses, compared to $10.3 million in recapture of provision for credit losses in the preceding quarter and $15.2 million in provision for credit losses in the third quarter of 2020. The third quarter 2020 provision for credit losses was primarily the result of the impact of the COVID-19 pandemic. In the first nine months of 2021, net income was $151.1 million, or $4.32 per diluted share, compared to net income of $77.0 million, or $2.17 per diluted share for the same period a year earlier. Banner’s first nine months of 2021 results include $28.1 million in recapture of provision for credit losses, compared to $67.3 million in provision for credit losses in the first nine months of 2020.

Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable November 12, 2021, to common shareholders of record on November 02, 2021.

“Our third quarter 2021 performance continues to demonstrate the success of our super community bank model, which is based on responsive service that generates client loyalty and attracts new client relationships,” said Mark Grescovich, President and CEO. “We benefited from continued core deposit growth and an acceleration of SBA PPP loan fee income as a result of SBA PPP loan forgiveness. The unprecedented level of market liquidity and our continued focus on building client relationships contributed to our core deposits increasing 18% compared to September 30, 2020. Additionally, Banner had provided 13,293 SBA PPP loans totaling nearly $1.61 billion as of September 30, 2021. As of quarter end, SBA forgiveness had been received for 10,548 SBA PPP loans totaling $1.23 billion. Our essential onsite employees, such as those working in our branches, continue to serve clients in person. In July 2021, we began to normalize our operations by returning additional groups of employees back to bank worksites; however, due to the recent increases in COVID-19 cases, we have currently suspended returning our remaining employees to bank worksites.”

“After a comprehensive review of our business, we implemented Banner Forward, a bank-wide initiative to drive revenue growth and reduce operating expense,” said Grescovich. “Implementation of this plan commenced during the third quarter of 2021 with full implementation expected in 2023, with the goal of producing meaningful results in the near term while staying true to our mission and value proposition of being connected, knowledgeable and responsive to our clients, communities and employees. The focus of Banner Forward is to accelerate growth in commercial banking, deepen relationships with retail customers, advance technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes. As part of Banner Forward, we have identified potential additional opportunities to rationalize our physical footprint. During the third quarter of 2021, we incurred expenses of $7.6 million related to Banner Forward.”

“Due to improvements in economic forecasts and continued solid performance of the loan portfolio during the current quarter, we recorded an $8.6 million recapture to our provision for credit losses during the current quarter. This compares to a $10.3 million recapture to our provision for credit losses during the preceding quarter and a $15.2 million provision for credit losses in the third quarter a year ago. Our allowance for credit losses - loans remains strong at 1.52% of total loans and 485% of non-performing loans at September 30, 2021, compared to 1.53% of total loans and 481% of non-performing loans at June 30, 2021,” said Grescovich.

At September 30, 2021, Banner Corporation had $16.64 billion in assets, $9.08 billion in net loans and $14.16 billion in deposits. Banner operates 150 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2021 Highlights

  • Revenues increased 4% to $155.5 million, compared to $149.9 million in the preceding quarter, and increased 4% when compared to $149.2 million in the third quarter a year ago.
  • Net interest income, before the recapture of provision for credit losses, increased to $130.1 million in the third quarter of 2021, compared to $127.6 million in the preceding quarter and $121.0 million in the third quarter a year ago.
  • Net interest margin on a tax equivalent basis was 3.47%, compared to 3.52% in the preceding quarter and 3.72% in the third quarter a year ago.
  • Mortgage banking revenues increased 30% to $9.8 million, compared to $7.5 million in the preceding quarter, and decreased 41% compared to $16.6 million in the third quarter a year ago.
  • Return on average assets was 1.20%, compared to 1.36% in the preceding quarter and 1.01% in the third quarter a year ago.
  • Net loans receivable decreased to $9.08 billion at September 30, 2021, compared to $9.51 billion at June 30, 2021, and decreased 9% when compared to $10.00 billion at September 30, 2020.
  • Non-performing assets decreased to $29.7 million, or 0.18% of total assets, at September 30, 2021, compared to $31.5 million, or 0.19% of total assets in the preceding quarter, and decreased from $36.7 million, or 0.25% of total assets, at September 30, 2020.
  • The allowance for credit losses - loans was $139.9 million, or 1.52% of total loans receivable, as of September 30, 2021, compared to $148.0 million, or 1.53% of total loans receivable as of June 30, 2021 and $168.0 million or 1.65% of total loans receivable as of September 30, 2020.
  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 4% to $13.31 billion at September 30, 2021, compared to $12.76 billion at June 30, 2021, and increased 18% compared to $11.30 billion a year ago. Core deposits represented 94% of total deposits at September 30, 2021.
  • Dividends to shareholders were $0.41 per share in the quarter ended September 30, 2021.
  • Common shareholders’ equity per share increased 1% to $48.67 at September 30, 2021, compared to $48.31 at the preceding quarter end, and increased 4% from $46.83 a year ago.
  • Tangible common shareholders’ equity per share* increased 1% to $37.30 at September 30, 2021, compared to $36.99 at the preceding quarter end, and increased 5% from $35.56 a year ago.
  • Banner repurchased 300,000 shares of its common stock during the quarter at an average cost of $55.50 per share.

*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 and non-interest income) and the adjusted efficiency ratio (which excludes merger and acquisition-related expenses, COVID-19 expenses, Banner Forward expenses, amortization of core deposit intangibles, real estate owned operations 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

In September 2021, Banner completed the consolidation of five branches as it continues to see migration of transactions to the digital space, reducing in-branch transactions. During the past year, client adoption of mobile and digital banking accelerated, while physical branch transaction volume declined. Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic related restrictions have ended.

Income Statement Review

Net interest income, before the recapture of provision for credit losses, was $130.1 million in the third quarter of 2021, compared to $127.6 million in the preceding quarter and $121.0 million in the third quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.47% for the third quarter of 2021, a five basis-point decrease compared to 3.52% in the preceding quarter and a 25 basis-point decrease compared to 3.72% in the third quarter a year ago.

“Higher core deposit balances, resulting in an increase in low yielding short term investments, adversely affected our net interest margin during the quarter. This impact was partly offset by higher interest income, primarily as a result of the decline in low yielding SBA PPP loans and a corresponding acceleration of the recognition of deferred loan fee income due to loan repayments from SBA loan forgiveness,” said Grescovich. “Additionally, the ongoing low interest rate environment continues to place downward pressure on loan yields.” Acquisition accounting adjustments added three basis points to the net interest margin in both the current and preceding quarter and seven basis points in the third quarter a year ago. The total purchase discount for acquired loans was $11.5 million at September 30, 2021, compared to $12.5 million at June 30, 2021, and $17.9 million at September 30, 2020. In the first nine months of 2021, Banner’s net interest margin on a tax equivalent basis was 3.48% compared to 3.93% in the first nine months of 2020.

Average interest-earning asset yields decreased six basis points to 3.62% in the third quarter compared to 3.68% for the preceding quarter and decreased 36 basis points compared to 3.98% in the third quarter a year ago. Average loan yields increased 18 basis points to 4.88% compared to 4.70% in the preceding quarter and increased 41 basis points compared to 4.47% in the third quarter a year ago. The increase in average loan yields during the current quarter compared to the preceding quarter was primarily the result of the decline in the average balance of low yielding SBA PPP loans due to loan repayments from SBA loan forgiveness during the last two quarters, partially offset by lower rates on new originations and adjustable-rate loans resetting to lower current market rates. Loan discount accretion added five basis points to average loan yields in both the current and preceding quarter and nine basis points in the third quarter a year ago. Deposit costs were 0.08% in the third quarter of 2021, a one basis-point decrease compared to the preceding quarter and a nine basis-point decrease compared to the third quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020. The total cost of funds was 0.16% during the third quarter of 2021, a one basis-point decrease compared to the preceding quarter and an 11 basis-point decrease compared to the third quarter a year ago.

Banner recorded an $8.6 million recapture of provision for credit losses in the current quarter (comprised of an $8.9 million recapture of credit losses - loans and a $218,000 provision for credit losses - unfunded loan commitments). This recapture compares to a $10.3 million recapture of provision for credit losses in the prior quarter (comprised of an $8.1 million recapture of provision for credit losses - loans and a $2.2 million recapture of provision for credit losses - unfunded loan commitments) and a $15.2 million provision for credit losses in the third quarter a year ago (comprised of a $13.6 million provision for credit losses - loans and a $1.5 million recapture of provision for credit losses - unfunded loan commitments). The recapture of provision for credit losses for the current and preceding quarters primarily reflects improvement in forecasted economic indicators and a decrease in adversely classified loans. The provision for credit losses recorded in the third quarter a year ago primarily reflected expected lifetime credit losses based upon the economic 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.

Total non-interest income was $25.3 million in the third quarter of 2021, compared to $22.3 million in the preceding quarter and $28.2 million in the third quarter a year ago. Deposit fees and other service charges were $10.5 million in the third quarter of 2021, compared to $9.8 million in the preceding quarter and $8.7 million in the third quarter a year ago. The increase in deposit fees and other service charges from the third quarter a year ago is primarily a result of increased transaction deposit account activity and higher fees on certain transactions. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $9.8 million in the third quarter, compared to $7.5 million in the preceding quarter and decreased compared to $16.6 million in the third quarter of 2020. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale margin on one- to four-family held-for-sale loans and higher gains on the sale of multifamily held-for-sale loans. The decrease compared to the third quarter of 2020 was primarily due to a decrease in the gain on sale margin on one- to four-family held-for-sale loans, partially offset by higher gains on the sale of multifamily held-for-sale loans as well as a reduction in the volume of one- to four-family loans sold. Home purchase activity accounted for 68% of one- to four-family mortgage loan originations in the third quarter of 2021, compared to 66% in the prior quarter and 56% in the third quarter of 2020. In the first nine months of 2021, total non-interest income decreased 4% to $71.9 million, compared to $75.1 million in the first nine months of 2020.

Banner’s third quarter 2021 results included a $1.8 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, and a $56,000 net gain on the sale of securities. In the preceding quarter, results included a $58,000 net gain for fair value adjustments and a $77,000 net gain on the sale of securities. In the third quarter a year ago, results included a $37,000 net gain for fair value adjustments and a $644,000 net gain on the sale of securities.

Total revenue increased 4% to $155.5 million for the third quarter of 2021, compared to $149.9 million in the preceding quarter, and increased 4% compared to $149.2 million in the third quarter a year ago. Year-to-date, total revenues increased 3% to $447.3 million compared to $435.0 million for the same period one year earlier. Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $153.6 million in the third quarter of 2021, compared to $149.8 million in the preceding quarter and $148.6 million in the third quarter of 2020. In the first nine months of the year, adjusted revenue* was $444.8 million, compared to $436.5 million in the first nine months of 2020.

Total non-interest expense was $102.1 million in the third quarter of 2021, compared to $92.6 million in the preceding quarter and $90.0 million in the third quarter of 2020. The increase in non-interest expense for the current quarter compared to the prior quarter primarily reflects an $8.0 million increase in professional and legal expenses, primarily due to increased consultant expense, which included $5.8 million of expense related to the Banner Forward initiative in the current quarter, compared to $1.5 million in the prior quarter, as well as a $4.0 million accrual recorded related to pending litigation during the current quarter. Additionally, payment and card processing services expense increased $1.2 million primarily reflecting an increase in fraud related losses. These increases for the current quarter were partially offset by a $2.1 million decrease from the preceding quarter in salary and employee benefits expense related to a reduction in staffing. The year-over-year quarterly increase in non-interest expense also reflects increases in payment and card processing services expense, professional and legal expenses, and miscellaneous non-interest expense. The year-over-year quarterly increases in non-interest expense were partially offset by decreases in salary and employee benefits and COVID-19 expenses. COVID-19 expenses were $44,000 for the third quarter of 2021, compared to $117,000 for the preceding quarter and $778,000 in the third quarter a year ago. Year-to-date, total non-interest expense was $288.3 million, compared to $274.0 million in the same period a year earlier. Banner’s efficiency ratio was 65.70% for the current quarter, compared to 61.79% in the preceding quarter and 60.32% in the year ago quarter. Banner’s adjusted efficiency ratio* was 59.65% for the current quarter, compared to 58.50% in the preceding quarter and 58.02% in the year ago quarter.

For the third quarter of 2021, Banner had $12.1 million in state and federal income tax expense for an effective tax rate of 19.5%, 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 to $16.64 billion at September 30, 2021, compared to $16.18 billion at June 30, 2021, and increased 14% when compared to $14.64 billion at September 30, 2020. The total of securities and interest-bearing deposits held at other banks was $6.03 billion at September 30, 2021, compared to $5.19 billion at June 30, 2021 and $2.63 billion at September 30, 2020. The average effective duration of Banner's securities portfolio was approximately 4.4 years at September 30, 2021, compared to 4.0 years at September 30, 2020.

Net loans receivable decreased 4% to $9.08 billion at September 30, 2021, compared to $9.51 billion at June 30, 2021, and decreased 9% when compared to $10.00 billion at September 30, 2020. The decrease in net loans compared to the prior quarter primarily reflects the forgiveness of SBA PPP loans. SBA PPP loans decreased 62% to $310.2 million at September 30, 2021, compared to $825.1 million at June 30, 2021, and decreased 73% when compared to $1.15 billion at September 30, 2020. The decrease in SBA PPP loans was partially offset by increases in commercial real estate, multifamily real estate and one- to four-family loans. Commercial real estate and multifamily real estate loans increased 2% to $4.24 billion at September 30, 2021, compared to $4.14 billion at June 30, 2021, and increased 4% compared to $4.07 billion a year ago. Commercial business loans decreased 21% to $2.12 billion at September 30, 2021, compared to $2.68 billion at June 30, 2021, and decreased 32% compared to $3.11 billion a year ago, primarily due to SBA PPP loans forgiven. Excluding PPP loans, commercial business loans decreased 3% to $1.82 billion at September 30, 2021, compared to $1.87 billion at June 30, 2021, and decreased 7% compared to $1.96 billion a year ago. Agricultural business loans increased to $287.5 million at September 30, 2021, compared to $265.4 million three months earlier and decreased from $326.2 million a year ago. Total construction, land and land development loans were $1.33 billion at September 30, 2021, a 3% decrease from $1.37 billion at June 30, 2021, and a 5% increase compared to $1.27 billion a year earlier. Consumer loans increased slightly to $561.2 million at September 30, 2021, compared to $560.7 million at June 30, 2021, and decreased from $622.8 million a year ago. One- to four-family loans increased to $682.4 million at September 30, 2021, compared to $637.7 million at June 30, 2021, and decreased from $771.4 million a year ago. The year over year decrease primarily reflects held for investment loans being refinanced and sold as held for sale loans.

Loans held for sale were $63.7 million at September 30, 2021, compared to $71.7 million at June 30, 2021, and $185.9 million at September 30, 2020. The volume of one- to four- family residential mortgage loans sold was $232.2 million in the current quarter, compared to $266.7 million in the preceding quarter and $327.7 million in the third quarter a year ago. During the third quarter of 2021, Banner sold $96.1 million in multifamily loans, compared to $83.9 million in the preceding quarter and $108.6 million in the third quarter a year ago.

Total deposits increased 4% to $14.16 billion at September 30, 2021, compared to $13.64 billion at June 30, 2021, and increased 16% when compared to $12.22 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic. Non-interest-bearing account balances increased 5% to $6.40 billion at September 30, 2021, compared to $6.09 billion at June 30, 2021, and increased 18% compared to $5.41 billion a year ago. Core deposits were 94% of total deposits at both September 30, 2021 and June 30, 2021 and increased 18% compared to a year ago. Certificates of deposit decreased to $851.1 million at September 30, 2021, compared to $873.0 million at June 30, 2021, and decreased 7% compared to $915.4 million a year earlier. FHLB borrowings decreased to $50.0 million at September 30, 2021, compared to $100.0 million at June 30, 2021 and decreased from $150.0 million a year ago.

At September 30, 2021, total common shareholders’ equity was $1.67 billion, or 10.02% of assets, compared to $1.67 billion or 10.32% of assets at June 30, 2021, and $1.65 billion or 11.25% of assets a year ago. At September 30, 2021, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.28 billion, or 7.86% of tangible assets*, compared to $1.28 billion, or 8.09% of tangible assets, at June 30, 2021, and $1.25 billion, or 8.78% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $37.30 at September 30, 2021, compared to $35.56 per share a year ago.

Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At September 30, 2021, Banner's common equity Tier 1 capital ratio was 11.25%, its Tier 1 leverage capital to average assets ratio was 8.79%, and its total capital to risk-weighted assets ratio was 14.55%.

Credit Quality

The allowance for credit losses - loans was $139.9 million at September 30, 2021, or 1.52% of total loans receivable outstanding and 485% of non-performing loans, compared to $148.0 million at June 30, 2021, or 1.53% of total loans receivable outstanding and 481% of non-performing loans, and $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments, which was $10.1 million at September 30, 2021, compared to $9.9 million at June 30, 2021 and $12.1 million at September 30, 2020. Net loan recoveries totaled $756,000 in the third quarter of 2021, compared to net loan recoveries of $55,000 in the preceding quarter and $2.0 million of net loan charge-offs in the third quarter a year ago. Non-performing loans were $28.9 million at September 30, 2021, compared to $30.8 million at June 30, 2021, and $34.8 million a year ago. Real estate owned and other repossessed assets were $869,000 at September 30, 2021, compared to $780,000 at June 30, 2021, and $1.8 million a year ago.

Banner’s total substandard loans were $225.8 million at September 30, 2021, compared to $272.8 million at June 30, 2021, and $423.2 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 $29.7 million, or 0.18% of total assets, at September 30, 2021, compared to $31.5 million, or 0.19% of total assets, at June 30, 2021, and $36.7 million, or 0.25% of total assets, a year ago.

At September 30, 2021, Banner had 41 mortgage loans totaling $12.4 million operating under forbearance agreements due to COVID-19. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance.

Conference Call

Banner will host a conference call on Thursday, October 21, 2021, 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 10160533, or at www.bannerbank.com.

About the Company

Banner Corporation is a $16.64 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

The COVID-19, pandemic is adversely affecting us, our clients, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on client behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; (16) the costs associated with Banner Forward and (17) 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, 2021   Jun 30, 2021   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
                     
INTEREST INCOME:                    
Loans receivable   $ 116,487     $ 115,391     $ 116,716     $ 340,802     $ 350,815  
Mortgage-backed securities   11,695     11,437     7,234     32,503     24,354  
Securities and cash equivalents   7,686     6,737     5,631     20,649     14,824  
    135,868     133,565     129,581     393,954     389,993  
INTEREST EXPENSE:                    
Deposits   2,749     3,028     5,179     9,386     20,623  
Federal Home Loan Bank advances   655     655     988     2,244     4,036  
Other borrowings   125     124     128     358     482  
Junior subordinated debentures and subordinated notes   2,193     2,204     2,260     6,605     4,988  
    5,722     6,011     8,555     18,593     30,129  
Net interest income   130,146     127,554     121,026     375,361     359,864  
(RECAPTURE)/PROVISION FOR CREDIT LOSSES   (8,638 )   (10,256 )   15,180     (28,145 )   67,273  
Net interest income after (recapture)/provision for credit losses   138,784     137,810     105,846     403,506     292,591  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   10,457     9,758     8,742     29,154     26,091  
Mortgage banking operations   9,752     7,478     16,562     28,670     40,891  
Bank-owned life insurance   1,245     1,245     1,286     3,797     4,653  
Miscellaneous   2,046     3,720     951     7,808     5,017  
    23,500     22,201     27,541     69,429     76,652  
Net gain on sale of securities   56     77     644     618     815  
Net change in valuation of financial instruments carried at fair value   1,778     58     37     1,895     (2,360 )
Total non-interest income   25,334     22,336     28,222     71,942     75,107  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   59,799     61,935     61,171     186,553     184,494  
Less capitalized loan origination costs   (8,290 )   (8,768 )   (8,517 )   (26,754 )   (25,433 )
Occupancy and equipment   13,153     12,823     13,022     38,965     39,114  
Information / computer data services   6,110     5,602     6,090     17,915     17,984  
Payment and card processing services   6,181     4,975     4,044     15,482     12,135  
Professional and legal expenses   12,324     4,371     2,368     20,023     6,450  
Advertising and marketing   1,521     1,181     1,105     3,965     3,584  
Deposit insurance expense   1,469     1,241     1,628     4,243     4,968  
State/municipal business and use taxes   1,219     1,083     1,196     3,367     3,284  
Real estate operations   53     118     (11 )   (71 )   93  
Amortization of core deposit intangibles   1,575     1,711     1,864     4,997     5,867  
Miscellaneous   6,977     6,156     5,285     18,642     16,841  
    102,091     92,428     89,245     287,327     269,381  
COVID-19 expenses   44     117     778     309     3,169  
Merger and acquisition-related expenses   10     79     5     660     1,483  
Total non-interest expense   102,145     92,624     90,028     288,296     274,033  
Income before provision for income taxes   61,973     67,522     44,040     187,152     93,665  
PROVISION FOR INCOME TAXES   12,089     13,140     7,492     36,031     16,694  
NET INCOME   $ 49,884     $ 54,382     $ 36,548     $ 151,121     $ 76,971  
Earnings per share available to common shareholders:                    
Basic   $ 1.45     $ 1.57     $ 1.04     $ 4.35     $ 2.18  
Diluted   $ 1.44     $ 1.56     $ 1.03     $ 4.32     $ 2.17  
Cumulative dividends declared per common share   $ 0.41     $ 0.41     $ 0.41     $ 1.23     $ 0.82  
Weighted average common shares outstanding:                    
Basic   34,446,510     34,736,639     35,193,109     34,716,914     35,285,567  
Diluted   34,669,492     34,933,714     35,316,679     35,012,228     35,524,771  
(Decrease) increase in common shares outstanding   (298,897 )   (184,455 )   669     (907,209 )   (593,008 )
                               


FINANCIAL CONDITION                   Percentage Change
(in thousands except shares and per share data)   Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020   Prior Qtr   Prior Yr Qtr
                         
ASSETS                        
Cash and due from banks   $ 392,035       $ 329,359       $ 311,899       $ 289,144       19.0   %   35.6   %
Interest-bearing deposits   1,808,547       1,138,572       922,284       416,394       58.8   %   334.3   %
Total cash and cash equivalents   2,200,582       1,467,931       1,234,183       705,538       49.9   %   211.9   %
Securities - trading   26,875       25,097       24,980       23,276       7.1   %   15.5   %
Securities - available for sale   3,446,575       3,275,979       2,322,593       1,758,384       5.2   %   96.0   %
Securities - held to maturity   447,708       455,256       421,713       429,033       (1.7 ) %   4.4   %
Total securities   3,921,158       3,756,332       2,769,286       2,210,693       4.4   %   77.4   %
Equity securities                     450,255       nm   (100.0 ) %
Federal Home Loan Bank stock   12,000       14,001       16,358       16,363       (14.3 ) %   (26.7 ) %
Securities purchased under agreements to resell   300,000       300,000                     %   nm
Loans held for sale   63,678       71,741       243,795       185,938       (11.2 ) %   (65.8 ) %
Loans receivable   9,218,384       9,654,181       9,870,982       10,163,917       (4.5 ) %   (9.3 ) %
Allowance for credit losses - loans   (139,915 )     (148,009 )     (167,279 )     (167,965 )     (5.5 ) %   (16.7 ) %
Net loans receivable   9,078,469       9,506,172       9,703,703       9,995,952       (4.5 ) %   (9.2 ) %
Accrued interest receivable   43,644       46,979       46,617       48,321       (7.1 ) %   (9.7 ) %
Real estate owned (REO) held for sale, net   852       763       816       1,795       11.7   %   (52.5 ) %
Property and equipment, net   151,503       156,063       164,556       171,576       (2.9 ) %   (11.7 ) %
Goodwill   373,121       373,121       373,121       373,121         %     %
Other intangibles, net   16,429       18,004       21,426       23,291       (8.7 ) %   (29.5 ) %
Bank-owned life insurance   192,950       192,677       191,830       191,755       0.1   %   0.6   %
Operating lease right-of-use assets   58,523       55,287       55,367       58,114       5.9   %   0.7   %
Other assets   224,970       222,786       210,565       209,363       1.0   %   7.5   %
Total assets   $ 16,637,879       $ 16,181,857       $ 15,031,623       $ 14,642,075       2.8   %   13.6   %
LIABILITIES                        
Deposits:                        
Non-interest-bearing   $ 6,400,864       $ 6,090,063       $ 5,492,924       $ 5,412,570       5.1   %   18.3   %
Interest-bearing transaction and savings accounts   6,912,759       6,673,598       6,159,052       5,887,419       3.6   %   17.4   %
Interest-bearing certificates   851,054       873,047       915,320       915,352       (2.5 ) %   (7.0 ) %
Total deposits   14,164,677       13,636,708       12,567,296       12,215,341       3.9   %   16.0   %
Advances from Federal Home Loan Bank   50,000       100,000       150,000       150,000       (50.0 ) %   (66.7 ) %
Customer repurchase agreements and other borrowings   247,358       237,736       184,785       176,983       4.0   %   39.8   %
Subordinated notes, net   98,472       98,380       98,201       98,114       0.1   %   0.4   %
Junior subordinated debentures at fair value   124,853       117,520       116,974       109,821       6.2   %   13.7   %
Operating lease liabilities   62,946       59,117       59,343       61,869       6.5   %   1.7   %
Accrued expenses and other liabilities   175,960       216,399       143,300       138,169       (18.7 ) %   27.4   %
Deferred compensation   46,494       46,786       45,460       45,249       (0.6 ) %   2.8   %
Total liabilities   14,970,760       14,512,646       13,365,359       12,995,546       3.2   %   15.2   %
SHAREHOLDERS’ EQUITY                        
Common stock   1,297,145       1,311,455       1,349,879       1,347,612       (1.1 ) %   (3.7 ) %
Retained earnings   355,035       319,505       247,316       222,959       11.1   %   59.2   %
Other components of shareholders’ equity   14,939       38,251       69,069       75,958       (60.9 ) %   (80.3 ) %
Total shareholders’ equity   1,667,119       1,669,211       1,666,264       1,646,529       (0.1 ) %   1.3   %
Total liabilities and shareholders’ equity   $ 16,637,879       $ 16,181,857       $ 15,031,623       $ 14,642,075       2.8   %   13.6   %
Common Shares Issued:                        
Shares outstanding at end of period   34,251,991       34,550,888       35,159,200       35,158,568            
Common shareholders’ equity per share (1)   $ 48.67       $ 48.31       $ 47.39       $ 46.83            
Common shareholders’ tangible equity per share (1) (2)   $ 37.30       $ 36.99       $ 36.17       $ 35.56            
Common shareholders’ tangible equity to tangible assets (2)   7.86   %   8.09   %   8.69   %   8.78   %        
Consolidated Tier 1 leverage capital ratio   8.79   %   8.86   %   9.50   %   9.56   %        


(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, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020   Prior Qtr   Prior Yr Qtr
                         
Commercial real estate:                        
Owner-occupied   $ 1,122,275     $ 1,066,237     $ 1,076,467     $ 1,049,877     5.3   %   6.9   %
Investment properties   1,980,284     1,950,211     1,955,684     1,991,258     1.5   %   (0.6 ) %
Small balance CRE   601,751     621,102     573,849     597,971     (3.1 ) %   0.6   %
Multifamily real estate   532,760     504,445     428,223     426,659     5.6   %   24.9   %
Construction, land and land development:                        
Commercial construction   170,205     182,868     228,937     220,285     (6.9 ) %   (22.7 ) %
Multifamily construction   278,184     295,661     305,527     291,105     (5.9 ) %   (4.4 ) %
One- to four-family construction   571,431     603,895     507,810     518,085     (5.4 ) %   10.3   %
Land and land development   308,164     290,404     248,915     240,803     6.1   %   28.0   %
Commercial business:                        
Commercial business   1,039,731     1,124,359     1,133,989     1,193,651     (7.5 ) %   (12.9 ) %
SBA PPP   306,976     807,172     1,044,472     1,149,968     (62.0 ) %   (73.3 ) %
Small business scored   775,554     743,975     743,451     763,824     4.2   %   1.5   %
Agricultural business, including secured by farmland:                        
Agricultural business, including secured by farmland   284,255     247,467     299,949     326,169     14.9   %   (12.9 ) %
SBA PPP   3,214     17,962             (82.1 ) %   nm
One- to four-family residential   682,368     637,701     717,939     771,431     7.0   %   (11.5 ) %
Consumer:                        
Consumer—home equity revolving lines of credit   462,819     458,915     491,812     504,523     0.9   %   (8.3 ) %
Consumer—other   98,413     101,807     113,958     118,308     (3.3 ) %   (16.8 ) %
Total loans receivable   $ 9,218,384     $ 9,654,181     $ 9,870,982     $ 10,163,917     (4.5 ) %   (9.3 ) %
Restructured loans performing under their restructured terms   $ 5,273     $ 5,472     $ 6,673     $ 5,790          
Loans 30 - 89 days past due and on accrual   $ 6,911     $ 5,656     $ 12,291     $ 18,158          
Total delinquent loans (including loans on non-accrual), net   $ 18,619     $ 23,582     $ 36,131     $ 37,464          
Total delinquent loans  /  Total loans receivable   0.20 %   0.24 %   0.37 %   0.37 %        


LOANS BY GEOGRAPHIC LOCATION                       Percentage Change
    Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020   Prior Qtr   Prior Yr Qtr
    Amount   Percentage   Amount   Amount   Amount        
                             
Washington   $ 4,319,008     46.9 %   $ 4,541,792     $ 4,647,553     $ 4,767,113     (4.9 ) %   (9.4 ) %
California   2,160,280     23.4 %   2,246,580     2,279,749     2,316,739     (3.8 ) %   (6.8 ) %
Oregon   1,679,452     18.2 %   1,753,285     1,792,156     1,858,465     (4.2 ) %   (9.6 ) %
Idaho   536,128     5.8 %   525,610     537,996     576,983     2.0   %   (7.1 ) %
Utah   89,620     1.0 %   92,103     80,704     76,314     (2.7 ) %   17.4   %
Other   433,896     4.7 %   494,811     532,824     568,303     (12.3 ) %   (23.7 ) %
Total loans receivable   $ 9,218,384     100.0 %   $ 9,654,181     $ 9,870,982     $ 10,163,917     (4.5 ) %   (9.3 ) %
                                                       


ADDITIONAL FINANCIAL INFORMATION  
(dollars in thousands)  
   
LOAN ORIGINATIONS Quarters Ended
  Sep 30, 2021   Jun 30, 2021   Sep 30, 2020
Commercial real estate $ 174,827     $ 103,415     $ 74,400  
Multifamily real estate 26,155     45,674     2,664  
Construction and land 496,386     509,828     412,463  
Commercial business:          
Commercial business 229,859     181,996     128,729  
SBA PPP 907     55,990     24,848  
Agricultural business 9,223     12,546     16,990  
One-to four-family residential 49,594     47,086     32,733  
Consumer 145,102     131,424     132,100  
Total loan originations (excluding loans held for sale) $ 1,132,053     $ 1,087,959     $ 824,927  
                       


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
    Quarters Ended
CHANGE IN THE   Sep 30, 2021   Jun 30, 2021   Sep 30, 2020
ALLOWANCE FOR CREDIT LOSSES - LOANS            
Balance, beginning of period   $ 148,009       $ 156,054       $ 156,352    
(Recapture)/provision for credit losses - loans   (8,850 )     (8,100 )     13,641    
Recoveries of loans previously charged off:            
Commercial real estate   923       147       23    
One- to four-family real estate   19       20       94    
Commercial business   230       321       246    
Agricultural business, including secured by farmland   17       8          
Consumer   227       97       82    
    1,416       593       445    
Loans charged off:            
Commercial real estate         (3 )     (379 )  
One- to four-family real estate               (72 )  
Commercial business   (362 )     (123 )     (1,297 )  
Agricultural business, including secured by farmland   (179 )     (2 )     (492 )  
Consumer   (119 )     (410 )     (233 )  
    (660 )     (538 )     (2,473 )  
Net recoveries (charge-offs)   756       55       (2,028 )  
Balance, end of period   $ 139,915       $ 148,009       $ 167,965    
Net recoveries (charge-offs) / Average loans receivable   0.008   %   0.001   %   (0.019 ) %


             
ALLOCATION OF            
ALLOWANCE FOR CREDIT LOSSES - LOANS   Sep 30, 2021   Jun 30, 2021   Sep 30, 2020
Specific or allocated credit loss allowance:            
Commercial real estate   $ 57,215     $ 60,349     $ 59,705  
Multifamily real estate   6,657     5,807     3,256  
Construction and land   29,342     30,899     39,477  
One- to four-family real estate   9,460     9,800     12,868  
Commercial business   26,873     30,830     35,369  
Agricultural business, including secured by farmland   3,177     3,256     5,051  
Consumer   7,191     7,068     12,239  
Total allowance for credit losses - loans   $ 139,915     $ 148,009     $ 167,965  
Allowance for credit losses - loans / Total loans receivable   1.52 %   1.53 %   1.65 %
Allowance for credit losses - loans / Non-performing loans   485 %   481 %   482 %


    Quarters Ended
CHANGE IN THE   Sep 30, 2021   Jun 30, 2021   Sep 30, 2020
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS            
Balance, beginning of period   $ 9,909     $ 12,077       $ 10,555  
Provision/(recapture) for credit losses - unfunded loan commitments   218     (2,168 )     1,539  
Balance, end of period   $ 10,127     $ 9,909       $ 12,094  
                           


ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
  Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020
NON-PERFORMING ASSETS              
Loans on non-accrual status:              
Secured by real estate:              
Commercial $ 14,931     $ 17,427     $ 18,199     $ 7,824  
Construction and land 354     541     936     937  
One- to four-family 3,182     4,007     3,556     2,978  
Commercial business 2,700     3,673     5,407     14,867  
Agricultural business, including secured by farmland 1,022     1,200     1,743     2,066  
Consumer 1,850     1,799     2,719     2,896  
  24,039     28,647     32,560     31,568  
Loans more than 90 days delinquent, still on accrual:              
Secured by real estate:              
Commercial 3,955     911          
One- to four-family 772     579     1,899     2,649  
Commercial business 61     495     1,025     425  
Consumer 34     131     130     181  
  4,822     2,116     3,054     3,255  
Total non-performing loans 28,861     30,763     35,614     34,823  
REO 852     763     816     1,795  
Other repossessed assets 17     17     51     37  
Total non-performing assets $ 29,730     $ 31,543     $ 36,481     $ 36,655  
Total non-performing assets to total assets 0.18 %   0.19 %   0.24 %   0.25 %


  Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020
LOANS BY CREDIT RISK RATING              
               
Pass $ 8,956,604     $ 9,315,264     $ 9,494,147     $ 9,699,098  
Special Mention 36,001     66,103     36,598     41,575  
Substandard 225,779     272,814     340,237     423,244  
Total $ 9,218,384     $ 9,654,181     $ 9,870,982     $ 10,163,917  


  Quarters Ended   Nine Months Ended
REAL ESTATE OWNED Sep 30, 2021   Jun 30, 2021   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
Balance, beginning of period $ 763     $ 340     $ 2,400       $ 816       $ 814    
Additions from loan foreclosures 89     423           512       1,588    
Proceeds from dispositions of REO         (707 )     (783 )     (805 )  
Gain on sale of REO         120       307       216    
Valuation adjustments in the period         (18 )           (18 )  
Balance, end of period $ 852     $ 763     $ 1,795       $ 852       $ 1,795    


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                         
DEPOSIT COMPOSITION                   Percentage Change
    Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020   Prior Qtr   Prior Yr Qtr
                         
Non-interest-bearing   $ 6,400,864     $ 6,090,063     $ 5,492,924     $ 5,412,570     5.1   %   18.3   %
Interest-bearing checking   1,799,657     1,736,696     1,569,435     1,434,224     3.6   %   25.5   %
Regular savings accounts   2,773,995     2,646,302     2,398,482     2,332,287     4.8   %   18.9   %
Money market accounts   2,339,107     2,290,600     2,191,135     2,120,908     2.1   %   10.3   %
Total interest-bearing transaction and savings accounts   6,912,759     6,673,598     6,159,052     5,887,419     3.6   %   17.4   %
Total core deposits   13,313,623     12,763,661     11,651,976     11,299,989     4.3   %   17.8   %
Interest-bearing certificates   851,054     873,047     915,320     915,352     (2.5 ) %   (7.0 ) %
Total deposits   $ 14,164,677     $ 13,636,708     $ 12,567,296     $ 12,215,341     3.9   %   16.0   %


GEOGRAPHIC CONCENTRATION OF DEPOSITS                        
    Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020   Percentage Change
    Amount   Percentage   Amount   Amount   Amount   Prior Qtr   Prior Yr Qtr
Washington   $ 7,877,919     55.6 %   $ 7,547,591     $ 7,058,404     $ 6,820,329     4.4 %   15.5 %
Oregon   3,030,109     21.4 %   2,939,667     2,604,908     2,486,760     3.1 %   21.8 %
California   2,501,521     17.7 %   2,417,387     2,237,949     2,254,681     3.5 %   10.9 %
Idaho   755,128     5.3 %   732,063     666,035     653,571     3.2 %   15.5 %
Total deposits   $ 14,164,677     100.0 %   $ 13,636,708     $ 12,567,296     $ 12,215,341     3.9 %   16.0 %


INCLUDED IN TOTAL DEPOSITS   Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020
Public non-interest-bearing accounts   $ 193,414     $ 187,702     $ 175,352     $ 142,415  
Public interest-bearing transaction & savings accounts   161,407     156,987     127,523     117,514  
Public interest-bearing certificates   40,851     41,444     59,127     54,219  
Total public deposits   $ 395,672     $ 386,133     $ 362,002     $ 314,148  
                                 


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, 2021   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
Total capital to risk-weighted assets   $ 1,635,458     14.55 %   $ 899,302     8.00 %   $ 1,124,128     10.00 %
Tier 1 capital to risk-weighted assets   1,407,993     12.53 %   674,477     6.00 %   674,477     6.00 %
Tier 1 leverage capital to average assets   1,407,993     8.79 %   640,528     4.00 %   n/a   n/a
Common equity tier 1 capital to risk-weighted assets   1,264,493     11.25 %   505,857     4.50 %   n/a   n/a
Banner Bank:                        
Total capital to risk-weighted assets   1,524,897     13.57 %   898,803     8.00 %   1,123,504     10.00 %
Tier 1 capital to risk-weighted assets   1,397,432     12.44 %   674,102     6.00 %   898,803     8.00 %
Tier 1 leverage capital to average assets   1,397,432     8.73 %   640,385     4.00 %   800,482     5.00 %
Common equity tier 1 capital to risk-weighted assets   1,397,432     12.44 %   505,577     4.50 %   730,278     6.50 %
                                     


ADDITIONAL FINANCIAL INFORMATION                                  
(dollars in thousands)                                  
(rates / ratios annualized)                                  
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  Sep 30, 2021   Jun 30, 2021   Sep 30, 2020
  Average Balance   Interest and Dividends   Yield / Cost(3)   Average Balance   Interest and Dividends   Yield / Cost(3)   Average Balance   Interest and Dividends   Yield / Cost(3)
Interest-earning assets:                                  
Held for sale loans $ 114,938     $ 996     3.44 %   $ 69,908     $ 544     3.12 %   $ 161,385     $ 1,535     3.78 %
Mortgage loans 7,245,962     83,803     4.59 %   7,147,733     80,673     4.53 %   7,339,181     88,011     4.77 %
Commercial/agricultural loans 1,534,978     15,776     4.08 %   1,480,954     15,818     4.28 %   1,721,186     18,553     4.29 %
SBA PPP loans 566,515     15,421     10.80 %   1,144,195     17,796     6.24 %   1,141,105     7,843     2.73 %
Consumer and other loans 120,112     1,774     5.86 %   122,951     1,828     5.96 %   140,493     2,195     6.22 %
Total loans(1)(3) 9,582,505     117,770     4.88 %   9,965,741     116,659     4.70 %   10,503,350     118,137     4.47 %
Mortgage-backed securities 2,560,027     11,820     1.83 %   2,440,913     11,563     1.90 %   1,250,759     7,333     2.33 %
Other securities 1,491,035     7,873     2.09 %   1,250,417     7,088     2.27 %   884,916     6,036     2.71 %
Equity securities         %           %   379,483     186     0.19 %
Interest-bearing deposits with banks 1,486,839     586     0.16 %   1,139,749     376     0.13 %   171,894     123     0.28 %
FHLB stock 13,957     135     3.84 %   14,001     161     4.61 %   16,363     163     3.96 %
Total investment securities (3) 5,551,858     20,414     1.46 %   4,845,080     19,188     1.59 %   2,703,415     13,841     2.04 %
Total interest-earning assets 15,134,363     138,184     3.62 %   14,810,821     135,847     3.68 %   13,206,765     131,978     3.98 %
Non-interest-earning assets 1,301,383             1,227,167             1,259,816          
Total assets $ 16,435,746             $ 16,037,988             $ 14,466,581          
Deposits:                                  
Interest-bearing checking accounts $ 1,771,869     282     0.06 %   $ 1,754,363     302     0.07 %   $ 1,413,085     321     0.09 %
Savings accounts 2,721,028     458     0.07 %   2,622,716     454     0.07 %   2,251,294     813     0.14 %
Money market accounts 2,322,453     668     0.11 %   2,288,638     668     0.12 %   2,096,037     1,224     0.23 %
Certificates of deposit 863,971     1,341     0.62 %   889,020     1,604     0.72 %   966,028     2,821     1.16 %
Total interest-bearing deposits 7,679,321     2,749     0.14 %   7,554,737     3,028     0.16 %   6,726,444     5,179     0.31 %
Non-interest-bearing deposits 6,275,634         %   6,057,884         %   5,340,688         %
Total deposits 13,954,955     2,749     0.08 %   13,612,621     3,028     0.09 %   12,067,132     5,179     0.17 %
Other interest-bearing liabilities:                                  
FHLB advances 98,370     655     2.64 %   100,000     655     2.63 %   150,000     988     2.62 %
Other borrowings 252,720     125     0.20 %   240,229     124     0.21 %   177,628     128     0.29 %
Junior subordinated debentures and subordinated notes 247,944     2,193     3.51 %   247,944     2,204     3.57 %   247,944     2,260     3.63 %
Total borrowings 599,034     2,973     1.97 %   588,173     2,983     2.03 %   575,572     3,376     2.33 %
Total funding liabilities 14,553,989     5,722     0.16 %   14,200,794     6,011     0.17 %   12,642,704     8,555     0.27 %
Other non-interest-bearing liabilities(2) 202,918             199,619             193,256          
Total liabilities 14,756,907             14,400,413             12,835,960          
Shareholders’ equity 1,678,839             1,637,575             1,630,621          
Total liabilities and shareholders’ equity $ 16,435,746             $ 16,037,988             $ 14,466,581          
Net interest income/rate spread (tax equivalent)     $ 132,462     3.46 %       $ 129,836     3.51 %       $ 123,423     3.71 %
Net interest margin (tax equivalent)         3.47 %           3.52 %           3.72 %
Reconciliation to reported net interest income:                                  
Adjustments for taxable equivalent basis     (2,316 )           (2,282 )           (2,397 )    
Net interest income and margin, as reported     $ 130,146     3.41 %       $ 127,554     3.45 %       $ 121,026     3.65 %
Additional Key Financial Ratios:                                  
Return on average assets         1.20 %           1.36 %           1.01 %
Return on average equity         11.79 %           13.32 %           8.92 %
Average equity/average assets         10.21 %           10.21 %           11.27 %
Average interest-earning assets/average interest-bearing liabilities         182.82 %           181.89 %           180.86 %
Average interest-earning assets/average funding liabilities         103.99 %           104.30 %           104.46 %
Non-interest income/average assets         0.61 %           0.56 %           0.78 %
Non-interest expense/average assets         2.47 %           2.32 %           2.48 %
Efficiency ratio(4)         65.70 %           61.79 %           60.32 %
Adjusted efficiency ratio(5)         59.65 %           58.50 %           58.02 %


(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, $1.3 million, and $1.4 million for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million, $1.0 million, and $976,000 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.
(4)   Non-interest expense divided by the total of net interest income 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
  Sep 30, 2021   Sep 30, 2020
  Average Balance   Interest and Dividends   Yield/Cost(3)   Average Balance   Interest and Dividends   Yield/Cost(3)
Interest-earning assets:                      
Held for sale loans $ 101,380     $ 2,465     3.25 %   $ 155,571     $ 4,506     3.87 %
Mortgage loans 7,179,859     245,056     4.56 %   7,321,206     268,244     4.89 %
Commercial/agricultural loans 1,511,723     47,513     4.20 %   1,811,854     61,424     4.53 %
SBA PPP loans 958,848     44,009     6.14 %   638,380     13,131     2.75 %
Consumer and other loans 123,483     5,549     6.01 %   151,968     7,151     6.29 %
Total loans(1)(3) 9,875,293     344,592     4.67 %   10,078,979     354,456     4.70 %
Mortgage-backed securities 2,320,474     32,855     1.89 %   1,297,020     24,652     2.54 %
Other securities 1,265,056     21,648     2.29 %   710,967     15,205     2.86 %
Equity securities 574         %   165,395     309     0.25 %
Interest-bearing deposits with banks 1,221,241     1,224     0.13 %   159,065     688     0.58 %
FHLB stock 14,629     457     4.18 %   19,822     785     5.29 %
Total investment securities(3) 4,821,974     56,184     1.56 %   2,352,269     41,639     2.36 %
Total interest-earning assets 14,697,267     400,776     3.65 %   12,431,248     396,095     4.26 %
Non-interest-earning assets 1,255,512             1,232,997          
Total assets $ 15,952,779             $ 13,664,245          
Deposits:                      
Interest-bearing checking accounts $ 1,714,920     899     0.07 %   $ 1,352,369     1,164     0.11 %
Savings accounts 2,611,046     1,433     0.07 %   2,133,780     3,566     0.22 %
Money market accounts 2,284,904     2,111     0.12 %   1,940,096     5,228     0.36 %
Certificates of deposit 888,502     4,943     0.74 %   1,069,145     10,665     1.33 %
Total interest-bearing deposits 7,499,372     9,386     0.17 %   6,495,390     20,623     0.42 %
Non-interest-bearing deposits 6,001,354         %   4,738,559         %
Total deposits 13,500,726     9,386     0.09 %   11,233,949     20,623     0.25 %
Other interest-bearing liabilities:                      
FHLB advances 114,103     2,244     2.63 %   236,949     4,036     2.28 %
Other borrowings 232,142     358     0.21 %   195,977     482     0.33 %
Junior subordinated debentures and subordinated notes 247,944     6,605     3.56 %   181,886     4,988     3.66 %
Total borrowings 594,189     9,207     2.07 %   614,812     9,506     2.07 %
Total funding liabilities 14,094,915     18,593     0.18 %   11,848,761     30,129     0.34 %
Other non-interest-bearing liabilities(2) 203,349             197,912          
Total liabilities 14,298,264             12,046,673          
Shareholders’ equity 1,654,515             1,617,572          
Total liabilities and shareholders’ equity $ 15,952,779             $ 13,664,245          
Net interest income/rate spread (tax equivalent)     $ 382,183     3.47 %       $ 365,966     3.92 %
Net interest margin (tax equivalent)         3.48 %           3.93 %
Reconciliation to reported net interest income:                      
Adjustments for taxable equivalent basis     (6,822 )           (6,102 )    
Net interest income and margin, as reported     $ 375,361     3.41 %       $ 359,864     3.87 %
Additional Key Financial Ratios:                      
Return on average assets         1.27 %           0.75 %
Return on average equity         12.21 %           6.36 %
Average equity/average assets         10.37 %           11.84 %
Average interest-earning assets/average interest-bearing liabilities     `   181.59 %           174.84 %
Average interest-earning assets/average funding liabilities         104.27 %           104.92 %
Non-interest income/average assets         0.60 %           0.73 %
Non-interest expense/average assets         2.42 %           2.68 %
Efficiency ratio(4)         64.45 %           63.00 %
Adjusted efficiency ratio(5)         60.39 %           59.59 %


(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 $3.8 million and $3.6 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.0 million and $2.5 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(4)   Non-interest expense divided by the total of net interest income 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, 2021   Jun 30, 2021   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
Net interest income   $ 130,146       $ 127,554       $ 121,026       $ 375,361       $ 359,864    
Total non-interest income   25,334       22,336       28,222       71,942       75,107    
Total revenue (GAAP)   155,480       149,890       149,248       447,303       434,971    
Exclude net gain on sale of securities   (56 )     (77 )     (644 )     (618 )     (815 )  
Exclude net change in valuation of financial instruments carried at fair value   (1,778 )     (58 )     (37 )     (1,895 )     2,360    
Adjusted revenue (non-GAAP)   $ 153,646       $ 149,755       $ 148,567       $ 444,790       $ 436,516    


ADJUSTED EARNINGS   Quarters Ended   Nine Months Ended
    Sep 30, 2021   Jun 30, 2021   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
Net income (GAAP)   $ 49,884       $ 54,382       $ 36,548       $ 151,121       $ 76,971    
Exclude net gain on sale of securities   (56 )     (77 )     (644 )     (618 )     (815 )  
Exclude net change in valuation of financial instruments carried at fair value   (1,778 )     (58 )     (37 )     (1,895 )     2,360    
Exclude merger and acquisition-related expenses   10       79       5       660       1,483    
Exclude COVID-19 expenses   44       117       778       309       3,169    
Exclude Banner Forward expenses   7,592       1,905             10,447          
Exclude related net tax expense (benefit)   (1,395 )     (472 )     (24 )     (2,137 )     (1,476 )  
Total adjusted earnings (non-GAAP)   $ 54,301       $ 55,876       $ 36,626       $ 157,887       $ 81,692    
                     
Diluted earnings per share (GAAP)   $ 1.44       $ 1.56       $ 1.03       $ 4.32       $ 2.17    
Diluted adjusted earnings per share (non-GAAP)   $ 1.57       $ 1.60       $ 1.04       $ 4.51       $ 2.30    


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Nine Months Ended
    Sep 30, 2021   Jun 30, 2021   Sep 30, 2020   Sep 30, 2021   Sep 30, 2020
Non-interest expense (GAAP)   $ 102,145       $ 92,624       $ 90,028       $ 288,296       $ 274,033    
Exclude merger and acquisition-related expenses   (10 )     (79 )     (5 )     (660 )     (1,483 )  
Exclude COVID-19 expenses   (44 )     (117 )     (778 )     (309 )     (3,169 )  
Exclude Banner Forward expenses   (7,592 )     (1,905 )           (10,447 )        
Exclude CDI amortization   (1,575 )     (1,711 )     (1,864 )     (4,997 )     (5,867 )  
Exclude state/municipal tax expense   (1,219 )     (1,083 )     (1,196 )     (3,367 )     (3,284 )  
Exclude REO operations   (53 )     (118 )     11       71       (93 )  
Adjusted non-interest expense (non-GAAP)   $ 91,652       $ 87,611       $ 86,196       $ 268,587       $ 260,137    
                     
Net interest income (GAAP)   $ 130,146       $ 127,554       $ 121,026       $ 375,361       $ 359,864    
Non-interest income (GAAP)   25,334       22,336       28,222       71,942       75,107    
Total revenue   155,480       149,890       149,248       447,303       434,971    
Exclude net gain on sale of securities   (56 )     (77 )     (644 )     (618 )     (815 )  
Exclude net change in valuation of financial instruments carried at fair value   (1,778 )     (58 )     (37 )     (1,895 )     2,360    
Adjusted revenue (non-GAAP)   $ 153,646       $ 149,755       $ 148,567       $ 444,790       $ 436,516    
                     
Efficiency ratio (GAAP)   65.70   %   61.79   %   60.32   %   64.45   %   63.00   %
Adjusted efficiency ratio (non-GAAP)   59.65   %   58.50   %   58.02   %   60.39   %   59.59   %


TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS   Sep 30, 2021   Jun 30, 2021   Dec 31, 2020   Sep 30, 2020
Shareholders’ equity (GAAP)   $ 1,667,119       $ 1,669,211       $ 1,666,264       $ 1,646,529    
Exclude goodwill and other intangible assets, net   389,550       391,125       394,547       396,412    
Tangible common shareholders’ equity (non-GAAP)   $ 1,277,569       $ 1,278,086       $ 1,271,717