Market Overview

Banner Corporation Reports First Quarter Earnings of $16.9 million; Initiates Pandemic Relief and Community Support Actions

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WALLA WALLA, Wash., April 27, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $16.9 million, or $0.47 per diluted share, for the first quarter 2020, compared to $33.7 million, or $0.95 per diluted share, in the preceding quarter and $33.3 million, or $0.95 per diluted share, in the first quarter of 2019.  Banner's first quarter earnings reflect the impact of the COVID-19 pandemic resulting in a substantial reduction in business activity or the closing of businesses in all the western states Banner operates.

First quarter of 2020 results also include $1.1 million of acquisition-related expenses, compared to $4.4 million of acquisition-related expenses in the preceding quarter and $2.1 million in the first quarter of 2019.

"We are in unprecedented times - as a health crisis has quickly evolved to also become an economic crisis, creating far-reaching impacts to clients and the communities we serve," said Mark Grescovich, President and CEO.  "In mid-March we began preparations for the COVID-19 pandemic by closing branch lobbies, mobilizing personnel to work from home and providing appropriate IT equipment and services to accommodate Stay-At-Home Orders.  Our lending teams have reached out to borrowers that have been affected by the economic decline and offered assistance in various forms including deferred payments and interest-only payments.  We have worked with our customers to file applications for the Paycheck Protection Program offered through the Small Business Administration and expect this program to provide some near-term relief to help small businesses sustain operations.  Meanwhile, we are monitoring the economy closely and reviewing loan payment deferrals and interest waivers daily and have elevated our liquidity levels in anticipation of cash needs of our customers."

Grescovich concluded, "In anticipation of future credit losses, we determined it is prudent to increase the allowance for credit losses through the addition of $21.7 million in credit loss provisions for the quarter ended March 31, 2020." This provision compares to a $4.0 million provision for loan losses during the previous quarter and a $2.0 million provision for loan losses in the first quarter a year ago.  The allowance for credit losses - loans was 1.41% of total loans and 299% of non-performing loans at the end of the first quarter of 2020. The increased allowance includes provisions taken in anticipation of changes in risks associated with loan classification assignments and a deteriorating economy.

At March 31, 2020, Banner Corporation had $12.78 billion in assets, $9.16 billion in net loans and $10.45 billion in deposits.  Banner operates 176 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Response

  • SBA Paycheck Protection Program.  The U.S. Small Business Administration (SBA) is providing assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which is designed to provide near-term relief to help small businesses sustain operations.  Banner is offering small businesses loans to clients in its service area through this program.  As of April 16, 2020, the funds allocated to the PPP from the CARES Act had been fully allocated. Congress recently approved a second round of funding for the PPP.  Banner will continue to process applications received under the PPP until the available funds have been fully allocated.  Banner is also planning to assist small businesses with accessing other borrowing options as they become available, including the Main Street Lending Program and other government sponsored lending programs, as appropriate.
  • Loan Accommodations. Banner is offering payment and financial relief programs for borrowers impacted by COVID-19. These programs include loan payment deferrals for up to 90 days, waived late fees, and, on a more limited basis, waived interest or allowed interest-only loan payments and we have temporarily suspended foreclosure proceedings.  Since these loans were performing loans that were current on their payments prior to COVID-19, these modifications are not considered to be troubled debt restructurings.
  • Allowance for Credit Losses - Loans.  Banner recorded a provision for credit losses of $21.7 million for the first quarter of 2020, compared to a $4.0 million provision in the preceding quarter and a $2.0 million provision in the first quarter a year ago.  The provision for the current quarter reflects expected lifetime credit losses based upon the conditions and economic outlook that existed as of March 31, 2020.  The probability of further decline in economic conditions, including higher unemployment rates and lower gross domestic product, has increased since quarter end and should it materialize, an additional provision for expected credit losses will be necessary.
  • Branch Operations, IT Changes and One-Time Expenses. We have taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of our drive-up facilities, and by encouraging the use of our digital and electronic banking channels, all the while adjusting for evolving State and Federal guidelines.  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 the Company's network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $239,000 of related costs during the first quarter of 2020.
  • Capital Management.  At March 31, 2020, the tangible common shareholders' equity to tangible assets ratio was 9.70% and Banner's capital was well in excess of all regulatory requirements. During the current quarter, prior to the COVID-19 pandemic outbreak, Banner repurchased 624,780 shares of its common stock.  To preserve capital, Banner has discontinued any additional repurchase of shares until further notice and will closely monitor capital levels going forward.

First Quarter 2020 Highlights

  • Revenues were $138.4 million, compared to $139.8 million in the preceding quarter, and increased 3% when compared to $134.2 million in the first quarter a year ago.
  • Net interest income, before the provision for loan losses, was $119.3 million in the first quarter of 2020, compared to $119.5 million in the preceding quarter and $116.1 million in the first quarter a year ago.
  • Net interest margin was 4.19%, compared to 4.20% in the preceding quarter and 4.37% in the first quarter a year ago.
  • Mortgage banking revenues increased 63% to $10.2 million, compared to $6.2 million in the preceding quarter, and increased 198% compared to $3.4 million in the first quarter a year ago, reflecting strong refinance demand due to decreasing market interest rates.
  • Return on average assets was 0.54%, compared to 1.07% in the preceding quarter and 1.15% in the first quarter a year ago.
  • Net loans receivable decreased modestly to $9.16 billion at March 31, 2020, compared to $9.20 billion at December 31, 2019, and increased 7% when compared to $8.60 billion at March 31, 2019.
  • Non-performing assets increased to $46.1 million, or 0.36% of total assets, at March 31, 2020, compared to $40.5 million, or 0.32% of total assets in the preceding quarter, and $22.0 million, or 0.19% of total assets, at March 31, 2019.
  • Provision for credit losses - loans was $21.7 million, and the allowance for credit losses - loans was $130.5 million, or 1.41% of total loans receivable, as of March 31, 2020, compared to $100.6 million, or 1.08% of total loans receivable as of December 31, 2019.
  • Provision for credit losses - unfunded loan commitments was $1.7 million, and the allowance for credit losses - unfunded loan commitments was $11.5 million as of March 31, 2020, compared to $2.7 million as of December 31, 2019.
  • Core deposits increased 4% to $9.28 billion at March 31, 2020, compared to $8.93 billion at December 31, 2019, and increased 13% compared to $8.21 billion a year ago.  Core deposits represented 89% of total deposits at March 31, 2020.
  • Dividends to shareholders were $0.41 per share in the quarter ended March 31, 2020.
  • Common shareholders' equity per share increased 2% to $45.63 at March 31, 2020, compared to $44.59 at the preceding quarter end, and increased 6% from $42.99 a year ago.
  • Tangible common shareholders' equity per share* increased 3% to $34.23 at March 31, 2020, compared to $33.33 at the preceding quarter end, and increased 5% from $32.47 a year ago.

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

Significant Recent Initiatives and Events

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

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

Adoption of New Accounting Standard

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

Income Statement Review

Net interest income, before the provision for credit losses, was $119.3 million in the first quarter of 2020, compared to $119.5 million in the preceding quarter and $116.1 million in the first quarter a year ago.

Banner's net interest margin was 4.19% for the first quarter of 2020, a one basis-point decrease compared to 4.20% in the preceding quarter and an 18 basis-point decrease compared to 4.37% in the first quarter a year ago.  Grescovich added, "The net interest margin remained steady during the quarter as improved securities yields combined with a decline in funding cost helped offset the decline in loan yields.  The 150 basis-point decrease in the fed funds target rate did not occur until late in the quarter in March 2020, and the full effect of the lower interest rate environment had not yet been realized at quarter end.  Banner expects to see further margin compression during the second quarter."  Acquisition accounting adjustments added ten basis points to the net interest margin in the current quarter compared to eight basis points in the preceding quarter and seven basis points in the first quarter a year ago.  The total purchase discount for acquired loans was $22.2 million at March 31, 2020, compared to $25.0 million at December 31, 2019, and $24.2 million at March 31, 2019.

Average interest-earning asset yields decreased six basis points to 4.63% in the first quarter compared to 4.69% for the preceding quarter and decreased 26 basis points compared to 4.89% in the first quarter a year ago.  Average loan yields decreased ten basis points to 5.03% compared to 5.13% in the preceding quarter and decreased 28 basis points compared to 5.31% in the first quarter a year ago.  Loan discount accretion added 12 basis points to loan yields in the first quarter of 2020, compared to 11 basis points in the preceding quarter and nine basis points in the first quarter a year ago.  Deposit costs were 0.35% in the first quarter of 2020, a five basis-point decrease compared to the preceding quarter and a two basis-point decrease compared to the first quarter a year ago.  The decrease in deposit costs during the current quarter compared to the preceding quarter are the result of recent decreases in market interest rates; however, changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates.  The total cost of funds was 0.46% during the first quarter of 2020, a six basis-point decrease compared to the preceding quarter and a ten basis-point decrease compared to the first quarter a year ago.

Banner recorded a $21.7 million provision for credit losses in the current quarter, compared to $4.0 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology.  The provision for the current quarter reflects expected lifetime credit losses based upon the conditions that existed as of March 31, 2020 and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of March 31, 2020.

Total non-interest income was $19.2 million in the first quarter of 2020, compared to $20.3 million in the fourth quarter of 2019 and $18.1 million in the first quarter a year ago.  Deposit fees and other service charges were $9.8 million in the first quarter of 2020, compared to $9.6 million in the preceding quarter and $12.6 million in the first quarter a year ago.  The decrease in deposit fees and other service charges from the first quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, which reduced interchange fee income by approximately $7 million during the second half of 2019.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $10.2 million in the first quarter, compared to $6.2 million in the preceding quarter and $3.4 million in the first quarter of 2019.  The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans.  The increases compared to the first quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans primarily due to increased refinance activity.  Home purchase activity accounted for 54% of one- to four-family mortgage loan originations in the first quarter of 2020, compared to 56% in the prior quarter and 80% in the first quarter of 2019.

Banner's first quarter 2020 results included a $4.6 million net loss 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 widening market spreads during the quarter, and a $78,000 net gain on the sale of securities.  In the preceding quarter, results included a $36,000 net loss for fair value adjustments and a $62,000 net gain on the sale of securities.  In the first quarter a year ago, results included an $11,000 net gain for fair value adjustments and a $1,000 net gain on the sale of securities.

Total revenue decreased nominally to $138.4 million for the first quarter of 2020, compared to $139.8 million in the preceding quarter, and increased 3% compared to $134.2 million in the first quarter a year ago.  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 $142.9 million in the first quarter of 2020, compared to $139.7 million in the preceding quarter and $134.2 million in the first quarter of 2019.

Banner's total non-interest expense was $95.2 million in the first quarter of 2020, compared to $93.7 million in the preceding quarter and $90.0 million in the first quarter of 2019.  The increase in non-interest expense during the first quarter of 2020 reflects the first full quarter expenses associated with the operations acquired from AltaPacific, as well as lower deferred loan costs primarily related to lower loan originations.  Acquisition-related expenses were $1.1 million for the first quarter of 2020, compared to $4.4 million for the preceding quarter and $2.1 million in the first quarter of 2019.  The current quarter includes a $1.7 million provision for credit losses - unfunded loan commitments compared to no provision for the prior quarter or the year ago quarter.  Banner's efficiency ratio was 68.76% for the current quarter, compared to 67.03% in the preceding quarter and 67.06% in the year ago quarter.  Banner's adjusted efficiency ratio* was 63.47% for the current quarter, compared to 61.19% in the preceding quarter and 63.32% in the year ago quarter.

For the first quarter of 2020, Banner had $4.6 million in state and federal income tax expense for an effective tax rate of 21.4%, reflecting the benefits from tax exempt income.  Banner's statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 1% to $12.78 billion at March 31, 2020, compared to $12.60 billion at December 31, 2019, and increased 9% when compared to $11.74 billion at March 31, 2019.  The total of securities and interest-bearing deposits held at other banks was $2.15 billion at March 31, 2020, compared to $1.89 billion at both December 31, 2019 and March 31, 2019.  The increase during the current quarter was primarily the result of security purchases made towards the end of the quarter as balance sheet liquidity increased and market spreads widened.  The average effective duration of Banner's securities portfolio was approximately 2.9 years at March 31, 2020, compared to 3.0 years at March 31, 2019.

Net loans receivable decreased modestly to $9.16 billion at March 31, 2020, compared to $9.20 billion at December 31, 2019, and increased 7% when compared to $8.60 billion at March 31, 2019.  The year-over-year increase in net loans included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the preceding quarter.  Commercial real estate and multifamily real estate loans increased slightly to $4.02 billion at March 31, 2020, compared to $4.01 billion at December 31, 2019, and increased 11% compared to $3.63 billion a year ago.  Commercial business loans increased 1% to $2.17 billion at March 31, 2020, compared to $2.14 billion at December 31, 2019, and increased 12% compared to $1.94 billion a year ago.  Agricultural business loans decreased to $330.3 million at March 31, 2020, compared to $337.3 million three months earlier and $339.5 million a year ago.  Total construction, land and land development loans were $1.22 billion at March 31, 2020, a small decrease from $1.23 billion at December 31, 2019, and a 6% increase compared to $1.15 billion a year earlier.  Consumer loans decreased to $661.8 million at March 31, 2020, compared to $664.3 million at December 31, 2019, and $693.3 million a year ago.  One- to four-family loans decreased to $881.4 million at March 31, 2020, compared to $925.5 million at December 31, 2019, and $942.5 million a year ago.

Loans held for sale were $182.4 million at March 31, 2020, compared to $210.4 million at December 31, 2019, and $45.9 million at March 31, 2019.  The volume of one- to four- family residential mortgage loans sold was $204.0 million in the current quarter, compared to $268.1 million in the preceding quarter and $107.2 million in the first quarter a year ago.  During the first quarter of 2020, Banner sold $119.7 million in multifamily loans compared to $103.4 million in the preceding quarter and $149.9 million in the first quarter a year ago.

Total deposits increased 4% to $10.45 billion at March 31, 2020, compared to $10.05 billion at December 31, 2019, and increased 11% when compared to $9.38 billion a year ago.  The year-over-year increase in deposits included $313.4 million in deposits acquired in the AltaPacific acquisition during the preceding quarter.  Non-interest-bearing account balances increased 4% to $4.11 billion at March 31, 2020, compared to $3.95 billion at December 31, 2019, and increased 12% compared to $3.68 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 4% from the prior quarter and increased 13% compared to a year ago and represented 89% of total deposits at March 31, 2020.  Certificates of deposit increased 4% to $1.17 billion at March 31, 2020, compared to $1.12 billion at December 31, 2019, and increased slightly compared to $1.16 billion a year earlier.  The increase in certificates of deposit during the first quarter of 2020 primarily reflects the increase in brokered deposits to $251.0 million at March 31, 2020, compared to $202.9 million at December 31, 2019 and $239.4 million a year ago.  FHLB borrowings totaled $247.0 million at March 31, 2020, compared to $450.0 million at December 31, 2019, and $418.0 million a year earlier.

At March 31, 2020, total common shareholders' equity was $1.60 billion, or 12.53% of assets, compared to $1.59 billion or 12.65% of assets at December 31, 2019, and $1.51 billion or 12.87% of assets a year ago.  At March 31, 2020, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.20 billion, or 9.70% of tangible assets*, compared to $1.19 billion, or 9.77% of tangible assets, at December 31, 2019, and $1.14 billion, or 10.04% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $34.23 at March 31, 2020, compared to $32.47 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 March 31, 2020, Banner's common equity Tier 1 capital ratio was 10.52%, its Tier 1 leverage capital to average assets ratio was 10.45%, and its total capital to risk-weighted assets ratio was 12.98%.

Credit Quality

The allowance for credit losses - loans was $130.5 million at March 31, 2020, or 1.41% of total loans receivable outstanding and 299% of non-performing loans, compared to $100.6 million at December 31, 2019, or 1.08% of total loans receivable outstanding and 254% of non-performing loans, and $97.3 million at March 31, 2019, or 1.12% of total loans receivable outstanding and 504% 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 $11.5 million at March 31, 2020, compared to $2.7 million at December 31, 2019 and $2.6 million at March 31, 2019.  Net loan recoveries totaled $404,000 in the first quarter, compared to net loan charge-offs of $1.2 million in both the preceding quarter and in the first quarter a year ago.  Banner recorded a $21.7 million provision for credit losses in the current quarter, compared to $4.0 million in the prior quarter and $2.0 million in the year ago quarter primarily due to forecasted credit losses related to the COVID-19 pandemic.  Non-performing loans were $43.7 million at March 31, 2020, compared to $39.6 million at December 31, 2019, and $19.3 million a year ago.  The increase in non-performing loans year-over-year was largely due to one commercial banking relationship totaling $14.7 million moving to nonaccrual during the prior quarter.  Real estate owned and other repossessed assets were $2.4 million at March 31, 2020, compared to $936,000 at December 31, 2019, and $2.7 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net 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 March 31, 2020, the total purchase discount for acquired loans was $22.2 million.

Banner's total non-performing assets were $46.1 million, or 0.36% of total assets, at March 31, 2020, compared to $40.5 million, or 0.32% of total assets, at December 31, 2019, and $22.0 million, or 0.19% of total assets, a year ago.

Conference Call

Banner will host a conference call on Tuesday, April 28, 2020, at 8:00 a.m. PDT, to discuss its first quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10140349, or at www.bannerbank.com.

About the Company

Banner Corporation is a $12.78 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.

Important 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 effect of the COVID-19 pandemic, including on Banner's credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity;  (2) 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; (3) 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; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (6) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (12) the costs, effects and outcomes of litigation; (13) 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; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; (16) 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 (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.

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


RESULTS OF OPERATIONS   Quarters Ended
(in thousands except shares and per share data)   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
             
INTEREST INCOME:            
Loans receivable   $ 118,926     $ 120,915     $ 115,455  
Mortgage-backed securities   9,137     8,924     10,507  
Securities and cash equivalents   3,602     3,570     4,034  
    131,665     133,409     129,996  
INTEREST EXPENSE:            
Deposits   8,750     9,950     8,643  
Federal Home Loan Bank advances   2,064     2,281     3,476  
Other borrowings   116     121     60  
Junior subordinated debentures   1,477     1,566     1,713  
    12,407     13,918     13,892  
Net interest income before provision for credit losses   119,258     119,491     116,104  
PROVISION FOR CREDIT LOSSES   21,748     4,000     2,000  
Net interest income   97,510     115,491     114,104  
NON-INTEREST INCOME:            
Deposit fees and other service charges   9,803     9,637     12,618  
Mortgage banking operations   10,191     6,248     3,415  
Bank-owned life insurance   1,050     1,170     1,276  
Miscellaneous   2,639     3,201     804  
    23,683     20,256     18,113  
Net gain on sale of securities   78     62     1  
Net change in valuation of financial instruments carried at fair value   (4,596 )   (36 )   11  
Total non-interest income   19,165     20,282     18,125  
NON-INTEREST EXPENSE:            
Salary and employee benefits   59,908     57,050     54,640  
Less capitalized loan origination costs   (5,806 )   (8,797 )   (4,849 )
Occupancy and equipment   13,107     13,377     13,766  
Information / computer data services   5,810     6,202     5,326  
Payment and card processing services   4,240     4,638     3,984  
Professional and legal expenses   1,919     2,262     2,434  
Advertising and marketing   1,827     2,021     1,529  
Deposit insurance expense   1,635     1,608     1,418  
State/municipal business and use taxes   984     917     945  
Real estate operations   100     40     (123 )
Amortization of core deposit intangibles   2,001     2,061     2,052  
Provision for credit losses - unfunded loan commitments   1,722          
Miscellaneous   6,357     7,892     6,744  
    93,804     89,271     87,866  
COVID-19 expenses   239          
Acquisition-related expenses   1,142     4,419     2,148  
Total non-interest expense   95,185     93,690     90,014  
Income before provision for income taxes   21,490     42,083     42,215  
PROVISION FOR INCOME TAXES   4,608     8,428     8,869  
NET INCOME   $ 16,882     $ 33,655     $ 33,346  
Earnings per share available to common shareholders:            
Basic   $ 0.48     $ 0.96     $ 0.95  
Diluted   $ 0.47     $ 0.95     $ 0.95  
Cumulative dividends declared per common share   $ 0.41     $ 1.41     $ 0.41  
Weighted average common shares outstanding:            
Basic   35,463,541     35,188,399     35,050,376  
Diluted   35,640,463     35,316,736     35,172,056  
(Decrease) increase in common shares outstanding   (649,117 )   1,578,219     (30,026 )


FINANCIAL CONDITION               Percentage Change
(in thousands except shares and per share data)   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019   Prior Qtr   Prior Yr Qtr
                     
ASSETS                    
Cash and due from banks   $ 211,013     $ 234,359     $ 218,458     (10.0 )%   (3.4 )%
Interest-bearing deposits   83,988     73,376     43,080     14.5 %   95.0 %
Total cash and cash equivalents   295,001     307,735     261,538     (4.1 )%   12.8 %
Securities - trading   21,040     25,636     25,838     (17.9 )%   (18.6 )%
Securities - available for sale   1,608,224     1,551,557     1,603,804     3.7 %   0.3 %
Securities - held to maturity   437,846     236,094     218,993     85.5 %   99.9 %
Total securities   2,067,110     1,813,287     1,848,635     14.0 %   11.8 %
Federal Home Loan Bank stock   20,247     28,342     27,063     (28.6 )%   (25.2 )%
Loans held for sale   182,428     210,447     45,865     (13.3 )%   297.7 %
Loans receivable   9,285,744     9,305,357     8,692,657     (0.2 )%   6.8 %
Allowance for credit losses - loans   (130,488 )   (100,559 )   (97,308 )   29.8 %   34.1 %
Net loans receivable   9,155,256     9,204,798     8,595,349     (0.5 )%   6.5 %
Accrued interest receivable   40,732     37,962     41,220     7.3 %   (1.2 )%
Real estate owned held for sale, net   2,402     814     2,611     195.1 %   (8.0 )%
Property and equipment, net   175,235     178,008     171,057     (1.6 )%   2.4 %
Goodwill   373,121     373,121     339,154     %   10.0 %
Other intangibles, net   27,157     29,158     30,647     (6.9 )%   (11.4 )%
Bank-owned life insurance   193,140     192,088     178,202     0.5 %   8.4 %
Other assets   249,121     228,271     198,944     9.1 %   25.2 %
Total assets   $ 12,780,950     $ 12,604,031     $ 11,740,285     1.4 %   8.9 %
LIABILITIES                    
Deposits:                    
Non-interest-bearing   $ 4,107,262     $ 3,945,000     $ 3,676,984     4.1 %   11.7 %
Interest-bearing transaction and savings accounts   5,175,969     4,983,238     4,535,969     3.9 %   14.1 %
Interest-bearing certificates   1,166,306     1,120,403     1,163,276     4.1 %   0.3 %
Total deposits   10,449,537     10,048,641     9,376,229     4.0 %   11.4 %
Advances from Federal Home Loan Bank   247,000     450,000     418,000     (45.1 )%   (40.9 )%
Customer repurchase agreements and other borrowings   128,764     118,474     121,719     8.7 %   5.8 %
Junior subordinated debentures at fair value   99,795     119,304     113,917     (16.4 )%   (12.4 )%
Accrued expenses and other liabilities   208,753     227,889     158,669     (8.4 )%   31.6 %
Deferred compensation   45,401     45,689     40,560     (0.6 )%   11.9 %
Total liabilities   11,179,250     11,009,997     10,229,094     1.5 %   9.3 %
SHAREHOLDERS' EQUITY                    
Common stock   1,343,699     1,373,940     1,338,386     (2.2 )%   0.4 %
Retained earnings   177,922     186,838     152,911     (4.8 )%   16.4 %
Other components of shareholders' equity   80,079     33,256     19,894     140.8 %   nm  
Total shareholders' equity   1,601,700     1,594,034     1,511,191     0.5 %   6.0 %
Total liabilities and shareholders' equity   $ 12,780,950     $ 12,604,031     $ 11,740,285     1.4 %   8.9 %
Common Shares Issued:                    
Shares outstanding at end of period   35,102,459     35,751,576     35,152,746          
Common shareholders' equity per share (1)   $ 45.63     $ 44.59     $ 42.99          
Common shareholders' tangible equity per share (1) (2)   $ 34.23     $ 33.33     $ 32.47          
Common shareholders' tangible equity to tangible assets (2)   9.70 %   9.77 %   10.04 %        
Consolidated Tier 1 leverage capital ratio   10.45 %   10.71 %   10.73 %        


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


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
                Percentage Change
LOANS   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019   Prior Qtr   Prior Yr Qtr
                     
Commercial real estate:                    
Owner-occupied   $ 1,024,089     $ 980,021     $ 869,634     4.5 %   17.8 %
Investment properties   2,007,537     2,024,988     1,838,328     (0.9 )%   9.2 %
Small balance CRE   591,783     613,484     619,646     (3.5 )%   (4.5 )%
Multifamily real estate   400,206     388,388     300,684     3.0 %   33.1 %
Construction, land and land development:                    
Commercial construction   205,476     210,668     181,888     (2.5 )%   13.0 %
Multifamily construction   250,410     233,610     183,203     7.2 %   36.7 %
One- to four-family construction   534,956     544,308     514,410     (1.7 )%   4.0 %
Land and land development   232,506     245,530     271,038     (5.3 )%   (14.2 )%
Commercial business:                    
Commercial business   1,357,817     1,364,650     1,199,930     (0.5 )%   13.2 %
Small business scored   807,539     772,657     738,665     4.5 %   9.3 %
Agricultural business, including secured by farmland   330,257     337,271     339,472     (2.1 )%   (2.7 )%
One- to four-family residential   881,387     925,531     942,477     (4.8 )%   (6.5 )%
Consumer:                    
Consumer—home equity revolving lines of credit   521,618     519,336     532,600     0.4 %   (2.1 )%
Consumer—other   140,163     144,915     160,682     (3.3 )%   (12.8 )%
Total loans receivable   $ 9,285,744     $ 9,305,357     $ 8,692,657     (0.2 )%   6.8 %
Restructured loans performing under their restructured terms   $ 6,423     $ 6,466     $ 13,036          
Loans 30 - 89 days past due and on accrual   $ 39,974     $ 20,178     $ 28,972          
Total delinquent loans (including loans on non-accrual), net   $ 61,101     $ 38,322     $ 46,616          
Total delinquent loans / Total loans receivable   0.66 %   0.41 %   0.54 %        


LOANS BY GEOGRAPHIC LOCATION                   Percentage Change
    Mar 31, 2020   Dec 31, 2019   Mar 31, 2019   Prior Qtr   Prior Yr Qtr
    Amount   Percentage   Amount   Amount        
                         
Washington   $ 4,350,273     46.7 %   $ 4,364,764     $ 4,329,759     (0.3 )%   0.5 %
California   2,140,895     23.1 %   2,129,789     1,581,654     0.5 %   35.4 %
Oregon   1,664,652     17.9 %   1,650,704     1,639,427     0.8 %   1.5 %
Idaho   524,663     5.7 %   530,016     524,705     (1.0 )%   %
Utah   52,747     0.6 %   60,958     59,940     (13.5 )%   (12.0 )%
Other   552,514     6.0 %   569,126     557,172     (2.9 )%   (0.8 )%
Total loans receivable   $ 9,285,744     100.0 %   $ 9,305,357     $ 8,692,657     (0.2 )%   6.8 %


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

LOAN ORIGINATIONS Quarters Ended
  Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Commercial real estate $ 76,359     $ 165,064     $ 92,183  
Multifamily real estate 10,171     20,034     3,733  
Construction and land 369,613     530,195     231,744  
Commercial business 199,873     228,050     137,142  
Agricultural business 31,261     25,992     30,483  
One-to four-family residential 31,041     30,432     31,186  
Consumer 67,357     70,539     62,370  
Total loan originations (excluding loans held for sale) $ 785,675     $ 1,070,306     $ 588,841  


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
    Quarters Ended
CHANGE IN THE   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
ALLOWANCE FOR CREDIT LOSSES - LOANS            
Balance, beginning of period   $ 100,559     $ 97,801     $ 96,485  
Beginning balance adjustment for adoption of ASC 326   7,812          
Provision for credit losses - loans   21,713     4,000     2,000  
Recoveries of loans previously charged off:            
Commercial real estate   167     199     21  
Construction and land           22  
One- to four-family real estate   148     159     43  
Commercial business   205     225     23  
Agricultural business, including secured by farmland   1,750     10      
Consumer   96     61     110  
    2,366     654     219  
Loans charged off:            
Commercial real estate   (100 )       (431 )
Multifamily real estate   (66 )        
Construction and land       (45 )    
One- to four-family real estate   (64 )        
Commercial business   (1,384 )   (1,180 )   (590 )
Agricultural business, including secured by farmland       (4 )   (4 )
Consumer   (348 )   (667 )   (371 )
    (1,962 )   (1,896 )   (1,396 )
Net recoveries/(charge-offs)   404     (1,242 )   (1,177 )
Balance, end of period   $ 130,488     $ 100,559     $ 97,308  
Net recoveries/(charge-offs) / Average loans receivable   0.004 %   (0.013 )%   (0.013 )%


ALLOCATION OF            
ALLOWANCE FOR CREDIT LOSSES - LOANS   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Specific or allocated credit loss allowance:            
Commercial real estate   $ 29,339     $ 30,591     $ 27,091  
Multifamily real estate   2,805     4,754     4,020  
Construction and land   34,217     22,994     23,713  
One- to four-family real estate   11,884     4,136     4,711  
Commercial business   31,648     23,370     18,662  
Agricultural business, including secured by farmland   4,513     4,120     3,596  
Consumer   16,082     8,202     7,980  
Total allocated   130,488     98,167     89,773  
Unallocated       2,392     7,535  
Total allowance for credit losses - loans   $ 130,488     $ 100,559     $ 97,308  
Allowance for credit losses - loans / Total loans receivable   1.41 %   1.08 %   1.12 %
Allowance for credit losses - loans / Non-performing loans   299 %   254 %   504 %


    Quarters Ended
CHANGE IN THE   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS            
Balance, beginning of period   $ 2,716     $ 2,599     $ 2,599  
Beginning balance adjustment for adoption of ASC 326   7,022          
Provision for credit losses - unfunded loan commitments   1,722          
Additions through acquisitions       117      
Balance, end of period   $ 11,460     $ 2,716     $ 2,599  



ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
  Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
NON-PERFORMING ASSETS          
Loans on non-accrual status:          
Secured by real estate:          
Commercial $ 8,512     $ 5,952     $ 5,734  
Multifamily     85      
Construction and land 1,393     1,905     3,036  
One- to four-family 3,045     3,410     1,538  
Commercial business 25,027     23,015     3,614  
Agricultural business, including secured by farmland 495     661     2,507  
Consumer 1,812     2,473     2,181  
  40,284     37,501     18,610  
Loans more than 90 days delinquent, still on accrual:          
Secured by real estate:          
Commercial 24     89      
Construction and land 1,407     332      
One- to four-family 1,089     877     640  
Commercial business 77     401     1  
Agricultural business, including secured by farmland 461          
Consumer 320     398     42  
  3,378     2,097     683  
Total non-performing loans 43,662     39,598     19,293  
Real estate owned (REO) 2,402     814     2,611  
Other repossessed assets 47     122     50  
Total non-performing assets $ 46,111     $ 40,534     $ 21,954  
Total non-performing assets to total assets 0.36 %   0.32 %   0.19 %


  Quarters Ended
REAL ESTATE OWNED Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Balance, beginning of period $ 814     $ 228     $ 2,611  
Additions from loan foreclosures 1,588          
Additions from acquisitions     650      
Proceeds from dispositions of REO     (105 )    
Gain on sale of REO     41      
Balance, end of period $ 2,402     $ 814     $ 2,611  



ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
                     
DEPOSIT COMPOSITION               Percentage Change
    Mar 31, 2020   Dec 31, 2019   Mar 31, 2019   Prior Qtr   Prior Yr Qtr
                     
Non-interest-bearing   $ 4,107,262     $ 3,945,000     $ 3,676,984     4.1 %   11.7 %
Interest-bearing checking   1,331,860     1,280,003     1,174,169     4.1 %   13.4 %
Regular savings accounts   1,997,265     1,934,041     1,865,852     3.3 %   7.0 %
Money market accounts   1,846,844     1,769,194     1,495,948     4.4 %   23.5 %
Total interest-bearing transaction and savings accounts   5,175,969     4,983,238     4,535,969     3.9 %   14.1 %
Total core deposits   9,283,231     8,928,238     8,212,953     4.0 %   13.0 %
Interest-bearing certificates   1,166,306     1,120,403     1,163,276     4.1 %   0.3 %
Total deposits   $ 10,449,537     $ 10,048,641     $ 9,376,229     4.0 %   11.4 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS                    
    Mar 31, 2020   Dec 31, 2019   Mar 31, 2019   Percentage Change
    Amount   Percentage   Amount   Amount   Prior Qtr   Prior Yr Qtr
Washington   $ 6,037,864     57.8 %   $ 5,861,809     $ 5,604,567     3.0 %   7.7 %
Oregon   2,093,738     20.0 %   2,006,163     1,906,132     4.4 %   9.8 %
California   1,828,064     17.5 %   1,698,289     1,402,213     7.6 %   30.4 %
Idaho   489,871     4.7 %   482,380     463,317     1.6 %   5.7 %
Total deposits   $ 10,449,537     100.0 %   $ 10,048,641     $ 9,376,229     4.0 %   11.4 %


INCLUDED IN TOTAL DEPOSITS   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Public non-interest-bearing accounts   $ 115,354     $ 111,015     $ 92,122  
Public interest-bearing transaction & savings accounts   130,958     133,403     118,033  
Public interest-bearing certificates   48,232     35,184     29,572  
Total public deposits   $ 294,544     $ 279,602     $ 239,727  
Total brokered deposits   $ 250,977     $ 202,884     $ 239,444  


ADDITIONAL FINANCIAL INFORMATION    
(in thousands)    
     
     
ACQUISITION OF ALTAPACIFIC BANCORP    
The following table* provides the estimated fair value of the assets acquired and liabilities assumed in the AltaPacific acquisition at November 1, 2019 (in thousands):    
  November 1, 2019
     
Cash paid   $ 2,360  
Fair value of common shares issued   85,200  
Total consideration   87,560  
     
Fair value of assets acquired:    
Cash and cash equivalents 39,686    
Securities 20,348    
Federal Home Loan Bank stock 2,005    
Loans receivable 332,355    
Real estate owned held for sale 650    
Property and equipment 3,809    
Core deposit intangible 4,610    
Bank-owned life insurance 11,890    
Deferred tax asset 166    
Other assets 10,150    
Total assets acquired 425,669    
     
Fair value of liabilities assumed:    
Deposits 313,374    
Advances from FHLB 40,226    
Junior subordinated debentures 5,814    
Deferred compensation 4,508    
Other liabilities 8,154    
Total liabilities assumed 372,076    
     
Net assets acquired   53,593  
     
Goodwill   $ 33,967  
     
* Amounts recorded in this table are preliminary estimates of fair value.  Additional adjustments to the acquisition accounting may be required with a measurement period of one-year from the acquisition date.


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
    Actual   Minimum to be categorized
as "Adequately
Capitalized"
  Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF MARCH 31, 2020   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
Total capital to risk-weighted assets   $ 1,397,202     12.98 %   $ 860,978     8.00 %   $ 1,076,223     10.00 %
Tier 1 capital to risk-weighted assets   1,275,806     11.85 %   645,734     6.00 %   645,734     6.00 %
Tier 1 leverage capital to average assets   1,275,806     10.45 %   488,124     4.00 %     n/a     n/a  
Common equity tier 1 capital to risk-weighted assets   1,132,306     10.52 %   484,300     4.50 %     n/a     n/a  
Banner Bank:                        
Total capital to risk-weighted assets   1,331,615     12.59 %   846,284     8.00 %   1,057,856     10.00 %
Tier 1 capital to risk-weighted assets   1,212,733     11.46 %   634,713     6.00 %   846,284     8.00 %
Tier 1 leverage capital to average assets   1,212,733     10.18 %   476,371     4.00 %   595,464     5.00 %
Common equity tier 1 capital to risk-weighted assets   1,212,733     11.46 %   476,035     4.50 %   687,606     6.50 %
Islanders Bank:                        
Total capital to risk-weighted assets   31,693     16.99 %   14,923     8.00 %   18,654     10.00 %
Tier 1 capital to risk-weighted assets   29,398     15.76 %   11,193     6.00 %   14,923     8.00 %
Tier 1 leverage capital to average assets   29,398     10.05 %   11,706     4.00 %   14,632     5.00 %
Common equity tier 1 capital to risk-weighted assets   29,398     15.76 %   8,394     4.50 %   12,125     6.50 %



ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
                       
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  March 31, 2020   December 31, 2019   March 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 $ 152,627   $ 1,520   4.01 %   $ 202,686   $ 2,048   4.01 %   $ 98,005   $ 1,121   4.64 %
Mortgage loans 7,310,115   92,454   5.09 %   7,134,231   92,926   5.17 %   6,833,933   88,602   5.26 %
Commercial/agricultural loans 1,884,006   22,357   4.77 %   1,853,447   23,256   4.98 %   1,703,503   22,812   5.43 %
Consumer and other loans 163,098   2,595   6.40 %   169,197   2,685   6.30 %   183,451   2,920   6.46 %
Total loans(1) 9,509,846   118,926   5.03 %   9,359,561   120,915   5.13 %   8,818,892   115,455   5.31 %
Mortgage-backed securities 1,354,585   9,137   2.71 %   1,371,438   8,924   2.58 %   1,392,118   10,507   3.06 %
Other securities 458,116   2,887   2.53 %   418,767   2,663   2.52 %   484,134   3,479   2.91 %
Interest-bearing deposits with banks 92,659   393   1.71 %   107,959   531   1.95 %   44,757   289   2.62 %
FHLB stock 26,522   322   4.88 %   26,036   376   5.73 %   31,761   266   3.40 %
Total investment securities 1,931,882   12,739   2.65 %   1,924,200   12,494   2.58 %   1,952,770   14,541   3.02 %
Total interest-earning assets 11,441,728   131,665   4.63 %   11,283,761   133,409   4.69 %   10,771,662   129,996   4.89 %
Non-interest-earning assets 1,193,256         1,152,751         1,031,591      
Total assets $ 12,634,984         $ 12,436,512         $ 11,803,253      
Deposits:                      
Interest-bearing checking accounts $ 1,266,647   469   0.15 %   $ 1,228,936   564   0.18 %   $ 1,153,949   475   0.17 %
Savings accounts 2,039,857   1,755   0.35 %   1,999,656   2,027   0.40 %   1,854,123   1,920   0.42 %
Money market accounts 1,743,118   2,439   0.56 %   1,607,954   2,842   0.70 %   1,490,326   2,251   0.61 %
Certificates of deposit 1,124,994   4,087   1.46 %   1,189,530   4,517   1.51 %   1,253,613   3,997   1.29 %
Total interest-bearing deposits 6,174,616   8,750   0.57 %   6,026,076   9,950   0.66 %   5,752,011   8,643   0.61 %
Non-interest-bearing deposits 3,965,380     %   3,959,097     %   3,605,922     %
Total deposits 10,139,996   8,750   0.35 %   9,985,173   9,950   0.40 %   9,357,933   8,643   0.37 %
Other interest-bearing liabilities:                      
FHLB advances 405,429   2,064   2.05 %   387,435   2,281   2.34 %   534,238   3,476   2.64 %
Other borrowings 124,771   116   0.37 %   126,782   121   0.38 %   118,008   60   0.21 %
Junior subordinated debentures 147,944   1,477   4.02 %   145,339   1,566   4.27 %   140,212   1,713   4.95 %
Total borrowings 678,144   3,657   2.17 %   659,556   3,968   2.39 %   792,458   5,249   2.69 %
Total funding liabilities 10,818,140   12,407   0.46 %   10,644,729   13,918   0.52 %   10,150,391   13,892   0.56 %
Other non-interest-bearing liabilities(2) 212,162         189,682         151,937      
Total liabilities 11,030,302         10,834,411         10,302,328      
Shareholders' equity 1,604,682         1,602,101         1,500,925      
Total liabilities and shareholders' equity $ 12,634,984         $ 12,436,512         $ 11,803,253      
Net interest income/rate spread   $ 119,258   4.17 %     $ 119,491   4.17 %     $ 116,104   4.33 %
Net interest margin     4.19 %       4.20 %       4.37 %
Additional Key Financial Ratios:                      
Return on average assets     0.54 %       1.07 %       1.15 %
Return on average equity     4.23 %       8.33 %       9.01 %
Average equity/average assets     12.70 %       12.88 %       12.72 %
Average interest-earning assets/average interest-bearing liabilities     166.97 %       168.78 %       164.59 %
Average interest-earning assets/average funding liabilities     105.76 %       106.00 %       106.12 %
Non-interest income/average assets     0.61 %       0.65 %       0.62 %
Non-interest expense/average assets     3.03 %       2.99 %       3.09 %
Efficiency ratio(4)     68.76 %       67.03 %       67.06 %
Adjusted efficiency ratio(5)     63.47 %       61.19 %       63.32 %


(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 ) Yields and costs have not been adjusted for the effect of tax-exempt interest.
(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.  Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments.  Adjusted non-interest expense excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles (CDI), REO gain (loss), FHLB prepayment penalties and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.


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
  Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Net interest income before provision for loan losses $ 119,258     $ 119,491     $ 116,104  
Total non-interest income 19,165     20,282     18,125  
Total GAAP revenue 138,423     139,773     134,229  
Exclude net gain on sale of securities (78 )   (62 )   (1 )
Exclude net change in valuation of financial instruments carried at fair value 4,596     36     (11 )
Adjusted revenue (non-GAAP) $ 142,941     $ 139,747     $ 134,217  


ADJUSTED EARNINGS   Quarters Ended
    Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Net income (GAAP)   $ 16,882     $ 33,655     $ 33,346  
Exclude net gain on sale of securities   (78 )   (62 )   (1 )
Exclude net change in valuation of financial instruments carried at fair value   4,596     36     (11 )
Exclude acquisition-related expenses   1,142     4,419     2,148  
Exclude COVID-19 expenses   239          
Exclude related net tax benefit   (1,405 )   (1,074 )   (513 )
Exclude FHLB prepayment penalties       735      
Total adjusted earnings (non-GAAP)   $ 21,376     $ 37,709     $ 34,969  
             
Diluted earnings per share (GAAP)   $ 0.47     $ 0.95     $ 0.95  
Diluted adjusted earnings per share (non-GAAP)   $ 0.60     $ 1.07     $ 0.99  


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
ADJUSTED EFFICIENCY RATIO   Quarters Ended
    Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Non-interest expense (GAAP)   $ 95,185     $ 93,690     $ 90,014  
Exclude acquisition-related expenses   (1,142 )   (4,419 )   (2,148 )
Exclude COVID-19 expenses   (239 )        
Exclude CDI amortization   (2,001 )   (2,061 )   (2,052 )
Exclude state/municipal tax expense   (984 )   (917 )   (945 )
Exclude REO operations   (100 )   (40 )   123  
Exclude FHLB prepayment penalties       (735 )    
Adjusted non-interest expense (non-GAAP)   $ 90,719     $ 85,518     $ 84,992  
             
Net interest income before provision for loan losses (GAAP)   $ 119,258     $ 119,491     $ 116,104  
Non-interest income (GAAP)   19,165     20,282     18,125  
Total revenue   138,423     139,773     134,229  
Exclude net gain on sale of securities   (78 )   (62 )   (1 )
Exclude net change in valuation of financial instruments carried at fair value   4,596     36     (11 )
Adjusted revenue (non-GAAP)   $ 142,941     $ 139,747     $ 134,217  
             
Efficiency ratio (GAAP)   68.76 %   67.03 %   67.06 %
Adjusted efficiency ratio (non-GAAP)   63.47 %   61.19 %   63.32 %


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS   Mar 31, 2020   Dec 31, 2019   Mar 31, 2019
Shareholders' equity (GAAP)   $ 1,601,700     $ 1,594,034     $ 1,511,191  
Exclude goodwill and other intangible assets, net   400,278     402,279     369,801  
Tangible common shareholders' equity (non-GAAP)   $ 1,201,422     $ 1,191,755     $ 1,141,390  
             
Total assets (GAAP)   $ 12,780,950     $ 12,604,031     $ 11,740,285  
Exclude goodwill and other intangible assets, net   400,278     402,279     369,801  
Total tangible assets (non-GAAP)   $ 12,380,672     $ 12,201,752     $ 11,370,484  
Common shareholders' equity to total assets (GAAP)   12.53 %   12.65 %   12.87 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   9.70 %   9.77 %   10.04 %
             
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE            
Tangible common shareholders' equity (non-GAAP)   $ 1,201,422     $ 1,191,755     $ 1,141,390  
Common shares outstanding at end of period   35,102,459     35,751,576     35,152,746  
Common shareholders' equity (book value) per share (GAAP)   $ 45.63     $ 44.59     $ 42.99  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 34.23     $ 33.33     $ 32.47  

 

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