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Banner Corporation Reports Net Income of $48.0 Million, or $1.39 Per Diluted Share, for Second Quarter 2022; Declares Quarterly Cash Dividend of $0.44 Per Share
Source: Nasdaq GlobeNewswire / 20 Jul 2022 16:00:01 America/New_York
WALLA WALLA, Wash., July 20, 2022 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $48.0 million, or $1.39 per diluted share, for the second quarter of 2022, a 9% increase compared to $44.0 million, or $1.27 per diluted share, for the preceding quarter and a 12% decrease compared to $54.4 million, or $1.56 per diluted share, for the second quarter of 2021. Banner’s second quarter 2022 results include $4.5 million of provision for credit losses, compared to $7.0 million in recapture of provision for credit losses in the preceding quarter and $10.3 million in recapture of provision for credit losses in the second quarter of 2021. In addition, during the second quarter of 2022 Banner recognized a $7.8 million gain related to the recently completed branch sale. In the first six months of 2022, net income was $91.9 million, or $2.66 per diluted share, compared to net income of $101.2 million, or $2.88 per diluted share for the same period a year earlier. Banner’s first six months of 2022 results include $2.4 million in recapture of provision for credit losses, compared to $19.5 million in recapture of provision for credit losses in the first six months of 2021.
Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.44 per share. The dividend will be payable August 12, 2022, to common shareholders of record on August 2, 2022.
“Banner’s second quarter operating results reflect the continued successful execution of our super community bank strategy, and the ongoing implementation of Banner Forward,” said Mark Grescovich, President and CEO. “Our performance for the second quarter of 2022 benefited from solid loan growth, higher yields on interest-earning assets that led to net interest margin expansion, and the closing of the branch sale. Our continued focus on cultivating new client relationships contributed to our core deposits increasing 5% and loans, excluding PPP loans, increasing 7%, compared to June 30, 2021. We believe Banner remains well positioned for rising interest rates with an asset sensitive position which should further expand our net interest margin, and ample on-balance sheet liquidity to support loan demand and mitigate rising deposit costs. Our approach of consistently delivering outstanding service and value to our clients, communities, colleagues, company and shareholders while meeting our performance objectives continues to guide our success.”
“During the third quarter of 2021 we began implementing Banner Forward, a bank-wide initiative to enhance revenue growth and reduce operating expense,” said Grescovich. “Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes. The remaining efficiency-related initiatives associated with Banner Forward are anticipated to be implemented sequentially over the third quarter with implementation of the revenue initiatives ramping up in the second half of the year and into 2023. We expect full implementation by next year. During the second quarter of 2022, we incurred expenses of $1.6 million related to Banner Forward.”
At June 30, 2022, Banner Corporation had $16.39 billion in assets, $9.33 billion in net loans and $14.21 billion in deposits. Banner operates 137 full service branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
Second Quarter 2022 Highlights
- Revenues increased 13% to $156.2 million, compared to $138.1 million in the preceding quarter, and increased 4% when compared to $149.9 million in the second quarter a year ago.
- Net interest income increased to $129.0 million in the second quarter of 2022, compared to $118.7 million in the preceding quarter and $127.6 million in the second quarter a year ago.
- Net interest margin on a tax equivalent basis was 3.44%, compared to 3.18% in the preceding quarter and 3.52% in the second quarter a year ago.
- Mortgage banking revenues decreased 10% to $4.0 million, compared to $4.4 million in the preceding quarter, and decreased 46% compared to $7.3 million in the second quarter a year ago.
- Return on average assets was 1.16%, compared to 1.06% in the preceding quarter and 1.36% in the second quarter a year ago.
- Net loans receivable increased 3% to $9.33 billion at June 30, 2022, compared to $9.02 billion at March 31, 2022, and decreased 2% compared to $9.51 billion at June 30, 2021.
- Non-performing assets were $19.1 million, or 0.12% of total assets, at June 30, 2022, compared to $19.1 million, or 0.11% of total assets in the preceding quarter, and decreased from $31.5 million, or 0.19% of total assets, at June 30, 2021.
- The allowance for credit losses - loans was $128.7 million, or 1.36% of total loans receivable, as of June 30, 2022, compared to $125.5 million, or 1.37% of total loans receivable as of March 31, 2022 and $148.0 million, or 1.53% of total loans receivable as of June 30, 2021.
- Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased 2% to $13.46 billion at June 30, 2022, compared to $13.72 billion at March 31, 2022, and increased 5% compared to $12.76 billion a year ago. Core deposits represented 95% of total deposits at June 30, 2022.
- Dividends to shareholders were $0.44 per share in the quarter ended June 30, 2022.
- Common shareholders’ equity per share decreased 4% to $43.46 at June 30, 2022, compared to $45.49 at the preceding quarter end, and decreased 10% from $48.31 a year ago.
- Tangible common shareholders’ equity per share* decreased 6% to $32.20 at June 30, 2022, compared to $34.25 at the preceding quarter end, and decreased 13% from $36.99 a year ago.
- Repurchased 200,000 shares of common stock at an average cost of $54.80 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, net gain (loss) on the sale of securities and gain on sale of branches from the total of net interest income and total 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, loss on extinguishment of debt and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.
Significant Recent Initiatives and Events
On June 24, 2022, Banner Bank completed the sale of four branches located in Hayden, Idaho, and in Chewelah, Colville, and Kettle Falls, Washington, generating a gain of $7.8 million.
The branch sale included deposit accounts with an approximate balance of $178.2 million. Banner Bank received a 5.0% premium in relation to the core deposits. The sale also included all related branch premises and equipment.
The sale of these branches further improves the Bank’s service footprint, while contributing to our capital, reducing excess liquidity, and improving our operating efficiency, including supporting the Banner Forward initiative by improving management’s focus on key operations and markets. Banner’s goal is that the combined impact of these branch sales and Banner Forward initiatives will be positive to future annual operating earnings.
Income Statement Review
Net interest income was $129.0 million in the second quarter of 2022, compared to $118.7 million in the preceding quarter and $127.6 million in the second quarter a year ago. “Rising interest rates during the quarter produced higher yields on loans and investment securities which improved our net interest margin. This impact was partially offset by the decline in the recognition of deferred loan fee income due to reduced loan repayments from Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loan forgiveness,” said Grescovich.
Banner’s net interest margin on a tax equivalent basis was 3.44% for the second quarter of 2022, a 26 basis-point increase compared to 3.18% in the preceding quarter and an eight basis-point decrease compared to 3.52% in the second quarter a year ago. Acquisition accounting adjustments added two basis points to the net interest margin in the current quarter, and three basis points in both the preceding quarter and the second quarter a year ago. The total purchase discount for acquired loans was $7.7 million at June 30, 2022, compared to $8.5 million at March 31, 2022, and $12.5 million at June 30, 2021.
Average yields on interest-earning assets increased 25 basis points to 3.54% for the second quarter of 2022 compared to 3.29% for the preceding quarter and decreased 14 basis points compared to 3.68% in the second quarter a year ago. In March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System commenced increasing the target range for the federal funds rate by implementing a 25 basis point increase. During the second quarter of 2022, the FOMC increased the target range for the federal funds rate by an additional 125 basis points to a range of 1.50% to 1.75%. The increase in average yields on interest-earnings assets during the current quarter reflects the lagging benefit of variable rate interest-earnings assets beginning to reprice higher. The year over year decreases in average yield on interest-earning assets primarily reflects decreases in the average yield on total loans due to a decline in the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness and increases in the average balance of interest-bearing deposits, as excess liquidity was invested in low yielding short term investments. Average loan yields increased four basis points to 4.54% compared to 4.50% in the preceding quarter and decreased 16 basis points compared to 4.70% in the second quarter a year ago. The increase in average loan yields during the current quarter compared to the preceding quarter was primarily the result of rising interest rates, partially offset by a decline in the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness during the quarter. Loan discount accretion added four basis points to average loan yields in the current quarter and added five basis points in both the preceding quarter and in the second quarter a year ago. Deposit costs were 0.06% in both the second quarter of 2022 and the preceding quarter, which was a three basis-point decrease compared to the second quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of an increase in the average balance of core deposits. The total cost of funding liabilities was 0.11% during the second quarter of 2022, a one basis-point decrease compared to the preceding quarter and a six basis-point decrease compared to 0.17% in the second quarter a year ago.
Banner recorded a $4.5 million provision for credit losses in the current quarter (comprised of a $3.1 million provision for credit losses - loans, a $1.4 million provision for credit losses - unfunded loan commitments and a $4,000 provision for credit losses - held-to-maturity debt securities). This compares to a $7.0 million recapture of provision for credit losses in the prior quarter (comprised of a $7.4 million recapture of provision for credit losses - loans, a $428,000 provision for credit losses - unfunded loan commitments and a $13,000 recapture of provision for credit losses - held-to-maturity debt securities) and a $10.3 million recapture of provision for credit losses in the second quarter a year ago (comprised of an $8.1 million recapture of provision for credit losses - loans, a $2.2 million recapture of provision for credit losses - unfunded loan commitments and a $12,000 provision for credit losses - held-to-maturity debt securities). The provision for credit losses for the current quarter primarily reflects loan growth and, to a lesser extent, a deterioration in forecasted economic conditions. The recapture of provision for credit losses for the preceding quarters primarily reflects improvement in the level of adversely classified loans, as well as in the forecasted economic indicators utilized to estimate credit losses during those periods.
Total non-interest income was $27.2 million in the second quarter of 2022, compared to $19.4 million in the preceding quarter and $22.3 million in the second quarter a year ago. The increase in non-interest income during the current quarter is primarily due to the previously mentioned $7.8 million gain recognized on the branch sale completed during the quarter. Deposit fees and other service charges were $11.0 million in the second quarter of 2022, compared to $11.2 million in the preceding quarter and $9.8 million in the second quarter a year ago. The increase in deposit fees and other service charges from the second quarter a year ago is primarily a result of increased deposit transaction account activity. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $4.0 million in the second quarter, compared to $4.4 million in the preceding quarter and $7.3 million in the second quarter a year ago. The decrease from the preceding quarter and from the second quarter of 2021 primarily reflects a reduction in the volume of one- to four-family loans sold, as well as a decrease in the gain on sale margin on one- to four-family held-for-sale loans. The reduction in volumes reflects a reduction in refinancing activity as interest rates increased during the current quarter. Home purchase activity accounted for 82% of one- to four-family mortgage loan originations in the second quarter of 2022, compared to 64% in the preceding quarter and was 66% in the second quarter of 2021. Mortgage banking revenue for the current quarter included a $458,000 lower of cost or market downward adjustment recorded on multifamily held for sale loans due to increases in market interest rates, compared to a $603,000 lower of cost or market downward adjustment recorded on multifamily held for sale loans in the first quarter of 2022. The prior quarter market downward adjustment was partially offset by $340,000 of gain recognized on the sale of multifamily loans. There were no sales of multifamily loans during the current quarter. Miscellaneous non-interest income increased to $2.1 million in the second quarter of 2022, compared to $1.7 million in the preceding quarter and decreased compared to $3.9 million in the second quarter a year ago. The decrease in miscellaneous non-interest income from the prior year quarter is primarily a result of higher gains recognized on the disposition of closed branch locations during the second quarter a year ago. Total non-interest income was $46.6 million in the first six months of each of 2022 and 2021.
Banner’s second quarter 2022 results included a $69,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and limited partnership investments, and a $32,000 net gain on the sale of securities. In the preceding quarter, results included a $49,000 net gain for fair value adjustments and a $435,000 net gain on the sale of securities. In the second quarter a year ago, results included a $58,000 net gain for fair value adjustments and a $77,000 net gain on the sale of securities.
Total revenue increased 13% to $156.2 million for the second quarter of 2022, compared to $138.1 million in the preceding quarter, and increased 4% compared to $149.9 million in the second quarter of 2021. Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities, the net change in valuation of financial instruments, and the gain on sale of branches) was $148.3 million in the second quarter of 2022, compared to $137.6 million in the preceding quarter and $149.8 million in the second quarter a year ago. In the first six months of the year, adjusted revenue* was $285.9 million, compared to $291.1 million in the first six months of 2021.
Total non-interest expense was $92.1 million in the second quarter of 2022, compared to $91.2 million in the preceding quarter and $92.6 million in the second quarter of 2021. The increase in non-interest expense for the current quarter compared to the prior quarter reflects a $1.3 million increase in salary and employee benefits expenses, primarily due to normal salary and wage adjustments, a $786,000 increase in payment and card processing services expenses, a $698,000 increase in professional services expenses and a $361,000 increase in advertising and marketing expenses, partially offset by a $1.0 million increase in capitalized loan origination costs, primarily due to increased loan production, a $793,000 decrease in loss on extinguishment of debt and a $654,000 decrease in information / computer data services expense. Banner recorded a $793,000 loss on extinguishment of debt in the prior quarter as a result of the redemption of $50.5 million of junior subordinated debentures. The year-over-year quarterly decrease in non-interest expense primarily reflects decreases in salary and employee benefits expense, primarily due to a reduction in staffing, and in professional and legal expenses, primarily due to a reduction in consultant expense, partially offset by a decrease in capitalized loan origination costs. Year-to-date, total non-interest expense was $183.2 million, compared to $186.2 million in the same period a year earlier. Banner’s efficiency ratio was 58.94% for the second quarter, compared to 66.04% in the preceding quarter and 61.79% in same quarter a year ago. Banner’s adjusted efficiency ratio* was 59.46% for the second quarter, compared to 62.09% in the preceding quarter and 58.50% in the year ago quarter.
For the second quarter of 2022, Banner had $11.6 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 23.6%, 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 decreased to $16.39 billion at June 30, 2022, compared to $16.78 billion at March 31, 2022, and increased 1% when compared to $16.18 billion at June 30, 2021. The total of securities and interest-bearing deposits held at other banks was $5.45 billion at June 30, 2022, compared to $6.06 billion at March 31, 2022 and $5.19 billion at June 30, 2021. The average effective duration of Banner's securities portfolio was approximately 6.5 years at June 30, 2022, compared to 4.6 years at June 30, 2021.
Total loans receivable increased to $9.46 billion at June 30, 2022, compared to $9.15 billion at March 31, 2022, and decreased when compared to $9.65 billion at June 30, 2021. Excluding SBA PPP loans, total loans receivable increased $337.8 million from the preceding quarter and increased $596.8 million from the second quarter a year ago. SBA PPP loans decreased 47% to $31.0 million at June 30, 2022, compared to $58.6 million at March 31, 2022, and decreased 96% when compared to $825.1 million at June 30, 2021. One- to four-family loans increased to $868.2 million at June 30, 2022, compared to $718.4 million at March 31, 2022, and increased from $611.2 million a year ago. The increase in one- to four-family loans from the preceding quarter was primarily the result of a jumbo mortgage special offered during the second quarter of 2022. Multifamily real estate loans decreased 4% to $575.2 million at June 30, 2022, compared to $598.6 million at March 31, 2022, and increased 23% compared to $469.0 million a year ago. Commercial real estate loans decreased 1% to $3.67 billion at June 30, 2022, compared to $3.71 billion at both March 31, 2022 and June 30, 2021. Commercial business loans increased 6% to $2.07 billion at June 30, 2022, compared to $1.96 billion at March 31, 2022, and decreased 22% compared to $2.67 billion a year ago, primarily due to SBA PPP loans forgiven. Excluding SBA PPP loans, commercial business loans increased 8% to $2.04 billion at June 30, 2022, compared to $1.90 billion at March 31, 2022, and increased 9% compared to $1.87 billion a year ago. Agricultural business loans increased to $283.4 million at June 30, 2022, compared to $245.3 million at March 31, 2022, and increased from $258.9 million a year ago. Total construction, land and land development loans were $1.40 billion at June 30, 2022, a 3% increase from $1.35 billion at March 31, 2022, and a 2% increase from $1.37 billion at June 30, 2021. Consumer loans increased to $595.6 million at June 30, 2022, compared to $567.6 million at March 31, 2022, and increased from $560.7 million a year ago.
Loans held for sale were $69.2 million at June 30, 2022, compared to $64.2 million at March 31, 2022, and $71.7 million at June 30, 2021. The volume of one- to four- family residential mortgage loans sold was $88.6 million in the current quarter, compared to $210.4 million in the preceding quarter and $266.7 million in the second quarter a year ago. Banner sold no multifamily loans during the second quarter of 2022, compared to $15.8 million in the preceding quarter and $83.9 million in the second quarter a year ago.
Total deposits decreased 2% to $14.21 billion at June 30, 2022, compared to $14.52 billion at March 31, 2022, and increased 4% when compared to $13.64 billion a year ago. The year-over-year increase in total deposits was due primarily to an increase in general client liquidity. Non-interest-bearing account balances decreased to $6.39 billion at June 30, 2022, compared to $6.49 billion at March 31, 2022, and increased 5% compared to $6.09 billion a year ago. Core deposits were 95% of total deposits at June 30, 2022, and 94% of total deposits at both March 31, 2022 and June 30, 2021. Certificates of deposit decreased to $756.3 million at June 30, 2022, compared to $800.4 million at March 31, 2022, and decreased 13% compared to $873.0 million a year earlier. Banner had no FHLB borrowings at both June 30, 2022 and March 31, 2022, compared to $100.0 million a year ago.
At June 30, 2022, total common shareholders’ equity was $1.49 billion, or 9.07% of assets, compared to $1.56 billion or 9.32% of assets at March 31, 2022, and $1.67 billion or 10.32% of assets a year ago. The decrease in total common shareholders’ equity during the current quarter was primarily due to a $101.8 million decrease in accumulated other comprehensive income related to an increase in the unrealized loss on available for sale securities reflecting the increase in market interest rates during the current quarter. In addition, Banner repurchased 200,000 shares of its common stock in the second quarter of 2022 at an average cost of $54.80 per share. At June 30, 2022, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.10 billion, or 6.88% of tangible assets*, compared to $1.18 billion, or 7.18% of tangible assets, at March 31, 2022, and $1.28 billion, or 8.09% of tangible assets, a year ago. Banner’s tangible book value per share* decreased to $32.20 at June 30, 2022, compared to $36.99 per share a year ago.
Banner and Banner Bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At June 30, 2022, Banner's common equity Tier 1 capital ratio was 11.21%, its Tier 1 leverage capital to average assets ratio was 8.74%, and its total capital to risk-weighted assets ratio was 13.80%.
Credit Quality
The allowance for credit losses - loans was $128.7 million at June 30, 2022, or 1.36% of total loans receivable and 688% of non-performing loans, compared to $125.5 million at March 31, 2022, or 1.37% of total loans receivable and 674% of non-performing loans, and $148.0 million at June 30, 2021, or 1.53% of total loans receivable and 481% 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 $14.2 million at June 30, 2022, compared to $12.9 million at March 31, 2022 and $9.9 million at June 30, 2021. Net loan recoveries totaled $87,000 in the second quarter of 2022, compared to $748,000 in the preceding quarter and $55,000 in the second quarter a year ago. Non-performing loans were $18.7 million at June 30, 2022, compared to $18.6 million at March 31, 2022, and $30.8 million a year ago. Real estate owned and other repossessed assets were $357,000 at June 30, 2022, compared to $446,000 at March 31, 2022, and $780,000 a year ago.
Banner’s total substandard loans were $154.5 million at June 30, 2022, compared to $178.4 million at March 31, 2022, and $272.8 million a year ago. The quarter over quarter decrease primarily reflects the payoff of substandard loans as well as balance paydowns and risk rating upgrades.
Banner’s total non-performing assets were $19.1 million, or 0.12% of total assets, at June 30, 2022, compared to $19.1 million, or 0.11% of total assets, at March 31, 2022, and $31.5 million, or 0.19% of total assets, a year ago.
Conference Call
Banner will host a conference call on Thursday July 21, 2022, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (844) 200-6205 using access code 218798 to participate in the call. A replay will be available for one week at (866) 813-9403 using access code 996409, or at www.bannerbank.com.
About the Company
Banner Corporation is a $16.39 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.
Factors that could cause Banner’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: (1) potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of the ongoing COVID-19 pandemic and any governmental or societal responses thereto; (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; (4) competitive pressures among depository institutions; (5) the effect of inflation on interest rate movements and their impact on client behavior and net interest margin; (6) uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the transition away from LIBOR toward new interest rate benchmarks; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (10) the ability to access cost-effective funding; (11) disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, information technology systems or on the third-party vendors who perform critical processing functions; (12) changes in financial markets; (13) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular, including the risk of inflation; (14) the costs, effects and outcomes of litigation; (15) legislation or regulatory changes, including but not limited to changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) future acquisitions by Banner of other depository institutions or lines of business; (18) future goodwill impairment due to changes in Banner’s business, changes in market conditions;(19) the costs associated with Banner Forward and (20) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and (21) other risks detailed from time to time in Banner’s filings with the Securities and Exchange Commission including Banner’s Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
RESULTS OF OPERATIONS Quarters Ended Six Months Ended (in thousands except shares and per share data) Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Jun 30, 2022 Jun 30, 2021 INTEREST INCOME: Loans receivable $ 104,506 $ 100,350 $ 115,391 $ 204,856 $ 224,315 Mortgage-backed securities 16,819 14,109 11,437 30,928 20,808 Securities and cash equivalents 11,676 8,432 6,737 20,108 12,963 133,001 122,891 133,565 255,892 258,086 INTEREST EXPENSE: Deposits 2,008 2,086 3,028 4,094 6,637 Federal Home Loan Bank advances — 291 655 291 1,589 Other borrowings 80 84 124 164 233 Subordinated debt 1,902 1,776 2,204 3,678 4,412 3,990 4,237 6,011 8,227 12,871 Net interest income 129,011 118,654 127,554 247,665 245,215 PROVISION (RECAPTURE) FOR CREDIT LOSSES 4,534 (6,961 ) (10,256 ) (2,427 ) (19,507 ) Net interest income after provision (recapture) for credit losses 124,477 125,615 137,810 250,092 264,722 NON-INTEREST INCOME: Deposit fees and other service charges 11,000 11,189 9,758 22,189 18,697 Mortgage banking operations 3,978 4,440 7,345 8,418 18,692 Bank-owned life insurance 2,239 1,631 1,245 3,870 2,552 Miscellaneous 2,051 1,683 3,853 3,734 5,988 19,268 18,943 22,201 38,211 45,929 Net gain on sale of securities 32 435 77 467 562 Net change in valuation of financial instruments carried at fair value 69 49 58 118 117 Gain on sale of branches, including related deposits 7,804 — — 7,804 — Total non-interest income 27,173 19,427 22,336 46,600 46,608 NON-INTEREST EXPENSE: Salary and employee benefits 60,832 59,486 61,935 120,318 126,754 Less capitalized loan origination costs (7,222 ) (6,230 ) (8,768 ) (13,452 ) (18,464 ) Occupancy and equipment 13,284 13,220 12,823 26,504 25,812 Information / computer data services 5,997 6,651 5,602 12,648 11,805 Payment and card processing services 5,682 4,896 4,975 10,578 9,301 Professional and legal expenses 2,878 2,180 4,371 5,058 7,699 Advertising and marketing 822 461 1,181 1,283 2,444 Deposit insurance 1,440 1,524 1,241 2,964 2,774 State/municipal business and use taxes 1,004 1,162 1,083 2,166 2,148 Real estate operations (121 ) (79 ) 118 (200 ) (124 ) Amortization of core deposit intangibles 1,425 1,424 1,711 2,849 3,422 Loss on extinguishment of debt — 793 — 793 — Miscellaneous 6,032 5,707 6,156 11,739 11,665 92,053 91,195 92,428 183,248 185,236 COVID-19 expenses — — 117 — 265 Merger and acquisition-related expenses — — 79 — 650 Total non-interest expense 92,053 91,195 92,624 183,248 186,151 Income before provision for income taxes 59,597 53,847 67,522 113,444 125,179 PROVISION FOR INCOME TAXES 11,632 9,884 13,140 21,516 23,942 NET INCOME $ 47,965 $ 43,963 $ 54,382 $ 91,928 $ 101,237 Earnings per common share: Basic $ 1.40 $ 1.28 $ 1.57 $ 2.68 $ 2.90 Diluted $ 1.39 $ 1.27 $ 1.56 $ 2.66 $ 2.88 Cumulative dividends declared per common share $ 0.44 $ 0.44 $ 0.41 $ 0.88 $ 0.82 Weighted average number of common shares outstanding: Basic 34,307,001 34,300,742 34,736,639 34,303,889 34,854,357 Diluted 34,451,740 34,598,436 34,933,714 34,532,935 35,149,986 (Decrease) increase in common shares outstanding (181,454 ) 120,152 (184,455 ) (61,302 ) (608,312 ) FINANCIAL CONDITION Percentage Change (in thousands except shares and per share data) Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Prior Qtr Prior Yr Qtr ASSETS Cash and due from banks $ 294,717 $ 414,780 $ 358,461 $ 329,359 (28.9) % (10.5) % Interest-bearing deposits 876,130 1,573,608 1,775,839 1,138,572 (44.3) % (23.1) % Total cash and cash equivalents 1,170,847 1,988,388 2,134,300 1,467,931 (41.1) % (20.2) % Securities - trading 27,886 27,354 26,981 25,097 1.9 % 11.1 % Securities - available for sale 3,094,422 3,147,547 3,638,993 3,275,979 (1.7) % (5.5) % Securities - held to maturity 1,151,765 1,015,522 520,922 455,256 13.4 % 153.0 % Total securities 4,274,073 4,190,423 4,186,896 3,756,332 2.0 % 13.8 % Federal Home Loan Bank stock 10,000 10,000 12,000 14,001 — % (28.6) % Securities purchased under agreements to resell 300,000 300,000 300,000 300,000 — % — % Loans held for sale 69,161 64,218 96,487 71,741 7.7 % (3.6) % Loans receivable 9,456,829 9,146,629 9,084,763 9,654,181 3.4 % (2.0) % Allowance for credit losses - loans (128,702 ) (125,471 ) (132,099 ) (148,009 ) 2.6 % (13.0) % Net loans receivable 9,328,127 9,021,158 8,952,664 9,506,172 3.4 % (1.9) % Accrued interest receivable 45,408 41,827 42,916 46,979 8.6 % (3.3) % Real estate owned (REO) held for sale, net 340 429 852 763 (20.7) % (55.4) % Property and equipment, net 141,114 142,594 148,759 156,063 (1.0) % (9.6) % Goodwill 373,121 373,121 373,121 373,121 — % — % Other intangibles, net 11,870 13,431 14,855 18,004 (11.6) % (34.1) % Bank-owned life insurance 293,631 294,556 244,156 192,677 (0.3) % 52.4 % Operating lease right-of-use assets 49,792 52,792 55,257 55,287 (5.7) % (9.9) % Other assets 317,713 283,234 242,609 222,786 12.2 % 42.6 % Total assets $ 16,385,197 $ 16,776,171 $ 16,804,872 $ 16,181,857 (2.3) % 1.3 % LIABILITIES Deposits: Non-interest-bearing $ 6,388,815 $ 6,494,852 $ 6,385,177 $ 6,090,063 (1.6) % 4.9 % Interest-bearing transaction and savings accounts 7,067,437 7,228,558 7,103,125 6,673,598 (2.2) % 5.9 % Interest-bearing certificates 756,312 800,364 838,631 873,047 (5.5) % (13.4) % Total deposits 14,212,564 14,523,774 14,326,933 13,636,708 (2.1) % 4.2 % Advances from Federal Home Loan Bank (FHLB) — — 50,000 100,000 — % (100.0) % Other borrowings 234,737 266,778 264,490 237,736 (12.0) % (1.3) % Subordinated notes, net 98,752 98,658 98,564 98,380 0.1 % 0.4 % Junior subordinated debentures at fair value 72,229 70,510 119,815 117,520 2.4 % (38.5) % Operating lease liabilities 55,746 57,343 59,756 59,117 (2.8) % (5.7) % Accrued expenses and other liabilities 180,999 148,689 148,303 216,399 21.7 % (16.4) % Deferred compensation 44,340 46,639 46,684 46,786 (4.9) % (5.2) % Total liabilities 14,899,367 15,212,391 15,114,545 14,512,646 (2.1) % 2.7 % SHAREHOLDERS’ EQUITY Common stock 1,289,499 1,298,212 1,299,381 1,311,455 (0.7) % (1.7) % Retained earnings 452,246 419,659 390,762 319,505 7.8 % 41.5 % Accumulated other comprehensive (loss) income (255,915 ) (154,091 ) 184 38,251 66.1 % (769.0) % Total shareholders’ equity 1,485,830 1,563,780 1,690,327 1,669,211 (5.0) % (11.0) % Total liabilities and shareholders’ equity $ 16,385,197 $ 16,776,171 $ 16,804,872 $ 16,181,857 (2.3) % 1.3 % Common Shares Issued: Shares outstanding at end of period 34,191,330 34,372,784 34,252,632 34,550,888 Common shareholders’ equity per share (1) $ 43.46 $ 45.49 $ 49.35 $ 48.31 Common shareholders’ tangible equity per share (1) (2) $ 32.20 $ 34.25 $ 38.02 $ 36.99 Common shareholders’ tangible equity to tangible assets (2) 6.88 % 7.18 % 7.93 % 8.09 % Consolidated Tier 1 leverage capital ratio 8.74 % 8.58 % 8.76 % 8.86 % (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 (1) Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Prior Qtr Prior Yr Qtr Commercial real estate (CRE): Owner-occupied $ 845,184 $ 872,801 $ 831,623 $ 780,558 (3.2) % 8.3 % Investment properties 1,628,105 1,670,896 1,674,027 1,633,481 (2.6) % (0.3) % Small balance CRE 1,191,903 1,162,164 1,281,863 1,294,879 2.6 % (8.0) % Multifamily real estate 575,183 598,588 530,885 468,970 (3.9) % 22.6 % Construction, land and land development: Commercial construction 193,984 179,796 167,998 181,316 7.9 % 7.0 % Multifamily construction 256,952 274,015 259,116 295,661 (6.2) % (13.1) % One- to four-family construction 625,488 582,800 568,753 603,895 7.3 % 3.6 % Land and land development 320,041 317,560 313,454 290,404 0.8 % 10.2 % Commercial business: Commercial business 1,176,287 1,081,847 1,038,206 1,123,026 8.7 % 4.7 % SBA PPP 30,651 57,854 132,574 807,172 (47.0) % (96.2) % Small business scored 865,828 817,065 792,310 743,975 6.0 % 16.4 % Agricultural business, including secured by farmland: Agricultural business, including secured by farmland 283,059 244,580 279,224 240,933 15.7 % 17.5 % SBA PPP 356 708 1,354 17,962 (49.7) % (98.0) % One- to four-family residential 868,175 718,403 657,474 611,227 20.8 % 42.0 % Consumer: Consumer—home equity revolving lines of credit 506,524 470,485 458,533 458,915 7.7 % 10.4 % Consumer—other 89,109 97,067 97,369 101,807 (8.2) % (12.5) % Total loans receivable $ 9,456,829 $ 9,146,629 $ 9,084,763 $ 9,654,181 3.4 % (2.0) % Restructured loans performing under their restructured terms $ 4,370 $ 5,279 $ 5,309 $ 5,472 Loans 30 - 89 days past due and on accrual $ 8,336 $ 9,611 $ 11,558 $ 5,656 Total delinquent loans (including loans on non-accrual), net $ 18,123 $ 19,231 $ 18,688 $ 23,582 Total delinquent loans / Total loans receivable 0.19 % 0.21 % 0.21 % 0.24 % (1) December 31, 2021 and June 30, 2021 loan balances were reclassified to match current period presentation.
LOANS BY GEOGRAPHIC LOCATION Percentage Change Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Prior Qtr Prior Yr Qtr Amount Percentage Amount Amount Amount Washington $ 4,436,092 46.9 % $ 4,254,748 $ 4,264,590 $ 4,541,792 4.3 % (2.3) % California 2,227,532 23.6 % 2,195,904 2,138,340 2,246,580 1.4 % (0.8) % Oregon 1,699,238 18.0 % 1,629,281 1,652,364 1,753,285 4.3 % (3.1) % Idaho 562,464 5.9 % 541,706 525,141 525,610 3.8 % 7.0 % Utah 94,508 1.0 % 84,720 74,913 92,103 11.6 % 2.6 % Other 436,995 4.6 % 440,270 429,415 494,811 (0.7) % (11.7) % Total loans receivable $ 9,456,829 100.0 % $ 9,146,629 $ 9,084,763 $ 9,654,181 3.4 % (2.0) % ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)LOAN ORIGINATIONS Quarters Ended Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Commercial real estate $ 121,365 $ 87,421 $ 103,415 Multifamily real estate 2,959 21,169 45,674 Construction and land 643,832 545,475 509,828 Commercial business: Commercial business 245,997 272,513 181,996 SBA PPP — — 55,990 Agricultural business 26,786 28,676 12,546 One-to four-family residential 126,963 55,821 47,086 Consumer 193,853 121,959 131,424 Total loan originations (excluding loans held for sale) $ 1,361,755 $ 1,133,034 $ 1,087,959 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Quarters Ended CHANGE IN THE Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 ALLOWANCE FOR CREDIT LOSSES – LOANS Balance, beginning of period $ 125,471 $ 132,099 $ 156,054 Provision (recapture) for credit losses – loans 3,144 (7,376 ) (8,100 ) Recoveries of loans previously charged off: Commercial real estate 129 87 147 Construction and land — 384 — One- to four-family real estate 98 40 20 Commercial business 234 149 321 Agricultural business, including secured by farmland 14 118 8 Consumer 112 216 97 587 994 593 Loans charged off: Commercial real estate — (2 ) (3 ) Construction and land — (5 ) — Commercial business (248 ) (82 ) (123 ) Agricultural business, including secured by farmland — — (2 ) Consumer (252 ) (157 ) (410 ) (500 ) (246 ) (538 ) Net recoveries 87 748 55 Balance, end of period $ 128,702 $ 125,471 $ 148,009 Net recoveries / Average loans receivable 0.001 % 0.008 % 0.001 % ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES – LOANS Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Specific or allocated credit loss allowance: Commercial real estate $ 46,373 $ 47,264 $ 60,349 Multifamily real estate 6,906 7,183 5,807 Construction and land 26,939 26,679 30,899 One- to four-family real estate 9,573 8,109 9,800 Commercial business 28,673 26,655 30,830 Agricultural business, including secured by farmland 3,002 2,586 3,256 Consumer 7,236 6,995 7,068 Total allowance for credit losses – loans $ 128,702 $ 125,471 $ 148,009 Allowance for credit losses - loans / Total loans receivable 1.36 % 1.37 % 1.53 % Allowance for credit losses - loans / Non-performing loans 688 % 674 % 481 % Quarters Ended CHANGE IN THE Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Balance, beginning of period $ 12,860 $ 12,432 $ 12,077 Provision/(recapture) for credit losses - unfunded loan commitments 1,386 428 (2,168 ) Balance, end of period $ 14,246 $ 12,860 $ 9,909 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 NON-PERFORMING ASSETS Loans on non-accrual status: Secured by real estate: Commercial $ 10,041 $ 10,618 $ 14,159 $ 17,427 Construction and land 200 119 479 541 One- to four-family 2,002 2,199 2,711 4,007 Commercial business 1,521 1,845 2,156 3,673 Agricultural business, including secured by farmland 1,022 1,021 1,022 1,200 Consumer 1,874 2,123 1,754 1,799 16,660 17,925 22,281 28,647 Loans more than 90 days delinquent, still on accrual: Secured by real estate: Commercial 899 — — 911 One- to four-family 1,053 210 436 579 Commercial business 20 351 2 495 Consumer 83 121 117 131 2,055 682 555 2,116 Total non-performing loans 18,715 18,607 22,836 30,763 REO 340 429 852 763 Other repossessed assets 17 17 17 17 Total non-performing assets $ 19,072 $ 19,053 $ 23,705 $ 31,543 Total non-performing assets to total assets 0.12 % 0.11 % 0.14 % 0.19 % Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 LOANS BY CREDIT RISK RATING Pass $ 9,274,655 $ 8,961,358 $ 8,874,468 $ 9,315,264 Special Mention 27,711 6,908 11,932 66,103 Substandard 154,463 178,363 198,363 272,814 Total $ 9,456,829 $ 9,146,629 $ 9,084,763 $ 9,654,181 Quarters Ended Six Months Ended REAL ESTATE OWNED Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Jun 30, 2022 Jun 30, 2021 Balance, beginning of period $ 429 $ 852 $ 340 $ 852 $ 816 Additions from loan foreclosures — — 423 — 423 Proceeds from dispositions of REO (257 ) (607 ) — (864 ) (783 ) Gain on sale of REO 168 184 — 352 307 Balance, end of period $ 340 $ 429 $ 763 $ 340 $ 763 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) DEPOSIT COMPOSITION Percentage Change Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Prior Qtr Prior Yr Qtr Non-interest-bearing $ 6,388,815 $ 6,494,852 $ 6,385,177 $ 6,090,063 (1.6) % 4.9 % Interest-bearing checking 1,859,582 1,971,936 1,947,414 1,736,696 (5.7) % 7.1 % Regular savings accounts 2,801,177 2,853,891 2,784,716 2,646,302 (1.8) % 5.9 % Money market accounts 2,406,678 2,402,731 2,370,995 2,290,600 0.2 % 5.1 % Total interest-bearing transaction and savings accounts 7,067,437 7,228,558 7,103,125 6,673,598 (2.2) % 5.9 % Total core deposits 13,456,252 13,723,410 13,488,302 12,763,661 (1.9) % 5.4 % Interest-bearing certificates 756,312 800,364 838,631 873,047 (5.5) % (13.4) % Total deposits $ 14,212,564 $ 14,523,774 $ 14,326,933 $ 13,636,708 (2.1) % 4.2 % GEOGRAPHIC CONCENTRATION OF DEPOSITS Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Percentage Change Amount Percentage Amount Amount Amount Prior Qtr Prior Yr Qtr Washington $ 7,820,321 55.0 % $ 8,067,253 $ 7,952,376 $ 7,547,591 (3.1) % 3.6 % Oregon 3,123,110 22.0 % 3,140,393 3,067,054 2,939,667 (0.6) % 6.2 % California 2,520,493 17.7 % 2,520,655 2,524,296 2,417,387 — % 4.3 % Idaho 748,640 5.3 % 795,473 783,207 732,063 (5.9) % 2.3 % Total deposits $ 14,212,564 100.0 % $ 14,523,774 $ 14,326,933 $ 13,636,708 (2.1) % 4.2 % INCLUDED IN TOTAL DEPOSITS Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Public non-interest-bearing accounts $ 220,694 $ 189,907 $ 193,917 $ 187,702 Public interest-bearing transaction & savings accounts 179,930 165,692 159,957 156,987 Public interest-bearing certificates 37,415 37,689 39,961 41,444 Total public deposits $ 438,039 $ 393,288 $ 393,835 $ 386,133 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Actual Minimum to be categorized as "Adequately Capitalized" Minimum to be
categorized as
"Well Capitalized"REGULATORY CAPITAL RATIOS AS OF JUNE 30, 2022 Amount Ratio Amount Ratio Amount Ratio Banner Corporation-consolidated: Total capital to risk-weighted assets $ 1,667,107 13.80 % $ 966,205 8.00 % $ 1,207,756 10.00 % Tier 1 capital to risk-weighted assets 1,439,822 11.92 % 724,654 6.00 % 724,654 6.00 % Tier 1 leverage capital to average assets 1,439,822 8.74 % 659,250 4.00 % n/a n/a Common equity tier 1 capital to risk-weighted assets 1,353,322 11.21 % 543,490 4.50 % n/a n/a Banner Bank: Total capital to risk-weighted assets 1,601,881 13.27 % 965,374 8.00 % 1,206,718 10.00 % Tier 1 capital to risk-weighted assets 1,474,596 12.22 % 724,031 6.00 % 965,374 8.00 % Tier 1 leverage capital to average assets 1,474,596 8.95 % 658,890 4.00 % 823,612 5.00 % Common equity tier 1 capital to risk-weighted assets 1,474,596 12.22 % 543,023 4.50 % 784,367 6.50 % ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) (rates / ratios annualized) ANALYSIS OF NET INTEREST SPREAD Quarters Ended Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 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 $ 69,338 $ 655 3.79 % $ 130,221 $ 1,115 3.47 % $ 69,908 $ 544 3.12 % Mortgage loans 7,565,894 85,408 4.53 % 7,347,662 81,032 4.47 % 7,147,733 80,673 4.53 % Commercial/agricultural loans 1,572,957 17,153 4.37 % 1,479,216 15,011 4.12 % 1,480,954 15,818 4.28 % SBA PPP loans 45,739 1,056 9.26 % 88,720 2,784 12.73 % 1,144,195 17,796 6.24 % Consumer and other loans 117,162 1,683 5.76 % 115,881 1,700 5.95 % 122,951 1,828 5.96 % Total loans(1) 9,371,090 105,955 4.54 % 9,161,700 101,642 4.50 % 9,965,741 116,659 4.70 % Mortgage-backed securities 3,170,915 16,965 2.15 % 2,975,263 14,235 1.94 % 2,440,913 11,563 1.90 % Other securities 1,626,204 10,326 2.55 % 1,573,834 8,429 2.17 % 1,250,417 7,088 2.27 % Interest-bearing deposits with banks 1,176,591 2,281 0.78 % 1,697,545 820 0.20 % 1,139,749 376 0.13 % FHLB stock 10,000 100 4.01 % 11,756 106 3.66 % 14,001 161 4.61 % Total investment securities 5,983,710 29,672 1.99 % 6,258,398 23,590 1.53 % 4,845,080 19,188 1.59 % Total interest-earning assets 15,354,800 135,627 3.54 % 15,420,098 125,232 3.29 % 14,810,821 135,847 3.68 % Non-interest-earning assets 1,282,649 1,372,182 1,227,167 Total assets $ 16,637,449 $ 16,792,280 $ 16,037,988 Deposits: Interest-bearing checking accounts $ 1,924,896 289 0.06 % $ 1,958,824 273 0.06 % $ 1,754,363 302 0.07 % Savings accounts 2,841,286 352 0.05 % 2,816,774 354 0.05 % 2,622,716 454 0.07 % Money market accounts 2,431,456 531 0.09 % 2,390,621 506 0.09 % 2,288,638 668 0.12 % Certificates of deposit 783,536 836 0.43 % 825,028 953 0.47 % 889,020 1,604 0.72 % Total interest-bearing deposits 7,981,174 2,008 0.10 % 7,991,247 2,086 0.11 % 7,554,737 3,028 0.16 % Non-interest-bearing deposits 6,456,432 — — % 6,421,143 — — % 6,057,884 — — % Total deposits 14,437,606 2,008 0.06 % 14,412,390 2,086 0.06 % 13,612,621 3,028 0.09 % Other interest-bearing liabilities: FHLB advances — — — % 42,222 291 2.80 % 100,000 655 2.63 % Other borrowings 252,085 80 0.13 % 266,148 84 0.13 % 240,229 124 0.21 % Junior subordinated debentures and subordinated notes 189,178 1,902 4.03 % 191,985 1,776 3.75 % 247,944 2,204 3.57 % Total borrowings 441,263 1,982 1.80 % 500,355 2,151 1.74 % 588,173 2,983 2.03 % Total funding liabilities 14,878,869 3,990 0.11 % 14,912,745 4,237 0.12 % 14,200,794 6,011 0.17 % Other non-interest-bearing liabilities(2) 239,676 225,953 199,619 Total liabilities 15,118,545 15,138,698 14,400,413 Shareholders’ equity 1,518,904 1,653,582 1,637,575 Total liabilities and shareholders’ equity $ 16,637,449 $ 16,792,280 $ 16,037,988 Net interest income/rate spread (tax equivalent) $ 131,637 3.43 % $ 120,995 3.17 % $ 129,836 3.51 % Net interest margin (tax equivalent) 3.44 % 3.18 % 3.52 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (2,626 ) (2,341 ) (2,282 ) Net interest income and margin, as reported $ 129,011 3.37 % $ 118,654 3.12 % $ 127,554 3.45 % Additional Key Financial Ratios: Return on average assets 1.16 % 1.06 % 1.36 % Return on average equity 12.67 % 10.78 % 13.32 % Average equity/average assets 9.13 % 9.85 % 10.21 % Average interest-earning assets/average interest-bearing liabilities 182.31 % 181.59 % 181.89 % Average interest-earning assets/average funding liabilities 103.20 % 103.40 % 104.30 % Non-interest income/average assets 0.66 % 0.47 % 0.56 % Non-interest expense/average assets 2.22 % 2.20 % 2.32 % Efficiency ratio(4) 58.94 % 66.04 % 61.79 % Adjusted efficiency ratio(5) 59.46 % 62.09 % 58.50 % (1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.4 million for the three months ended June 30, 2022, and $1.3 million for both the three months ended March 31, 2022 and June 30, 2021. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.2 million for the three months ended June 30, 2022, and $1.0 million for both the three months ended March 31, 2022 and June 30, 2021.
(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 Six Months Ended Jun 30, 2022 Jun 30, 2021 Average Balance Interest and Dividends Yield/Cost(3) Average Balance Interest and Dividends Yield/Cost(3) Interest-earning assets: Held for sale loans $ 103,508 $ 1,770 3.45 % $ 94,488 $ 1,469 3.14 % Mortgage loans 7,453,483 166,440 4.50 % 7,146,260 161,253 4.55 % Commercial/agricultural loans 1,526,345 32,164 4.25 % 1,499,902 31,737 4.27 % SBA PPP loans 67,111 3,840 11.54 % 1,158,266 28,588 4.98 % Consumer and other loans 116,525 3,383 5.85 % 125,197 3,775 6.08 % Total loans(1) 9,266,972 207,597 4.52 % 10,024,113 226,822 4.56 % Mortgage-backed securities 3,073,630 31,200 2.05 % 2,198,712 21,035 1.93 % Other securities 1,600,164 18,755 2.36 % 1,150,193 13,775 2.42 % Equity securities — — — % 866 — — % Interest-bearing deposits with banks 1,435,629 3,101 0.44 % 1,086,241 638 0.12 % FHLB stock 10,873 206 3.82 % 14,971 322 4.34 % Total investment securities 6,120,296 53,262 1.75 % 4,450,983 35,770 1.62 % Total interest-earning assets 15,387,268 260,859 3.42 % 14,475,096 262,592 3.66 % Non-interest-earning assets 1,327,169 1,232,196 Total assets $ 16,714,437 $ 15,707,292 Deposits: Interest-bearing checking accounts $ 1,941,766 562 0.06 % $ 1,685,973 617 0.07 % Savings accounts 2,829,098 706 0.05 % 2,555,144 975 0.08 % Money market accounts 2,411,152 1,037 0.09 % 2,265,819 1,443 0.13 % Certificates of deposit 804,167 1,789 0.45 % 900,970 3,602 0.81 % Total interest-bearing deposits 7,986,183 4,094 0.10 % 7,407,906 6,637 0.18 % Non-interest-bearing deposits 6,438,885 — — % 5,861,941 — — % Total deposits 14,425,068 4,094 0.06 % 13,269,847 6,637 0.10 % Other interest-bearing liabilities: FHLB advances 20,994 291 2.80 % 122,100 1,589 2.62 % Other borrowings 259,078 164 0.13 % 221,682 233 0.21 % Junior subordinated debentures and subordinated notes 190,573 3,678 3.89 % 247,944 4,412 3.59 % Total borrowings 470,645 4,133 1.77 % 591,726 6,234 2.12 % Total funding liabilities 14,895,713 8,227 0.11 % 13,861,573 12,871 0.19 % Other non-interest-bearing liabilities(2) 232,853 203,567 Total liabilities 15,128,566 14,065,140 Shareholders’ equity 1,585,871 1,642,152 Total liabilities and shareholders’ equity $ 16,714,437 $ 15,707,292 Net interest income/rate spread (tax equivalent) $ 252,632 3.31 % $ 249,721 3.47 % Net interest margin (tax equivalent) 3.31 % 3.48 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (4,967 ) (4,506 ) Net interest income and margin, as reported $ 247,665 3.25 % $ 245,215 3.42 % Additional Key Financial Ratios: Return on average assets 1.11 % 1.30 % Return on average equity 11.69 % 12.43 % Average equity/average assets 9.49 % 10.45 % Average interest-earning assets/average interest-bearing liabilities 181.95 % 180.95 % Average interest-earning assets/average funding liabilities 103.30 % 104.43 % Non-interest income/average assets 0.56 % 0.60 % Non-interest expense/average assets 2.21 % 2.39 % Efficiency ratio(4) 62.27 % 63.79 % Adjusted efficiency ratio(5) 60.72 % 60.77 % (1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.7 million and $2.5 million for the six months ended June 30, 2022 and June 30, 2021, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.2 million and $2.0 million for the six months ended June 30, 2022 and June 30, 2021, 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 Six Months Ended Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Jun 30, 2022 Jun 30, 2021 Net interest income (GAAP) $ 129,011 $ 118,654 $ 127,554 $ 247,665 $ 245,215 Non-interest income (GAAP) 27,173 19,427 22,336 46,600 46,608 Total revenue (GAAP) 156,184 138,081 149,890 294,265 291,823 Exclude net gain on sale of securities (32 ) (435 ) (77 ) (467 ) (562 ) Exclude net change in valuation of financial instruments carried at fair value (69 ) (49 ) (58 ) (118 ) (117 ) Exclude gain on sale of branches (7,804 ) — — (7,804 ) — Adjusted revenue (non-GAAP) $ 148,279 $ 137,597 $ 149,755 $ 285,876 $ 291,144 ADJUSTED EARNINGS Quarters Ended Six Months Ended Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Jun 30, 2022 Jun 30, 2021 Net income (GAAP) $ 47,965 $ 43,963 $ 54,382 $ 91,928 $ 101,237 Exclude net gain on sale of securities (32 ) (435 ) (77 ) (467 ) (562 ) Exclude net change in valuation of financial instruments carried at fair value (69 ) (49 ) (58 ) (118 ) (117 ) Exclude merger and acquisition-related expenses — — 79 — 650 Exclude COVID-19 expenses — — 117 — 265 Exclude gain on sale of branches (7,804 ) — — (7,804 ) — Exclude Banner Forward expenses 1,579 2,465 1,905 4,044 2,855 Exclude loss on extinguishment of debt — 793 — 793 — Exclude related net tax expense (benefit) 1,518 (666 ) (472 ) 852 (742 ) Total adjusted earnings (non-GAAP) $ 43,157 $ 46,071 $ 55,876 $ 89,228 $ 103,586 Diluted earnings per share (GAAP) $ 1.39 $ 1.27 $ 1.56 $ 2.66 $ 2.88 Diluted adjusted earnings per share (non-GAAP) $ 1.25 $ 1.33 $ 1.60 $ 2.58 $ 2.95 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) ADJUSTED EFFICIENCY RATIO Quarters Ended Six Months Ended Jun 30, 2022 Mar 31, 2022 Jun 30, 2021 Jun 30, 2022 Jun 30, 2021 Non-interest expense (GAAP) $ 92,053 $ 91,195 $ 92,624 $ 183,248 $ 186,151 Exclude merger and acquisition-related expenses — — (79 ) — (650 ) Exclude COVID-19 expenses — — (117 ) — (265 ) Exclude Banner Forward expenses (1,579 ) (2,465 ) (1,905 ) (4,044 ) (2,855 ) Exclude CDI amortization (1,425 ) (1,424 ) (1,711 ) (2,849 ) (3,422 ) Exclude state/municipal tax expense (1,004 ) (1,162 ) (1,083 ) (2,166 ) (2,148 ) Exclude REO operations 121 79 (118 ) 200 124 Exclude loss on extinguishment of debt — (793 ) — (793 ) — Adjusted non-interest expense (non-GAAP) $ 88,166 $ 85,430 $ 87,611 $ 173,596 $ 176,935 Net interest income (GAAP) $ 129,011 $ 118,654 $ 127,554 $ 247,665 $ 245,215 Non-interest income (GAAP) 27,173 19,427 22,336 46,600 46,608 Total revenue (GAAP) 156,184 138,081 149,890 294,265 291,823 Exclude net gain on sale of securities (32 ) (435 ) (77 ) (467 ) (562 ) Exclude net change in valuation of financial instruments carried at fair value (69 ) (49 ) (58 ) (118 ) (117 ) Exclude gain on sale of branches (7,804 ) — — (7,804 ) — Adjusted revenue (non-GAAP) $ 148,279 $ 137,597 $ 149,755 $ 285,876 $ 291,144 Efficiency ratio (GAAP) 58.94 % 66.04 % 61.79 % 62.27 % 63.79 % Adjusted efficiency ratio (non-GAAP) 59.46 % 62.09 % 58.50 % 60.72 % 60.77 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Jun 30, 2021 Shareholders’ equity (GAAP) $ 1,485,830 $ 1,563,780 $ 1,690,327 $ 1,669,211 Exclude goodwill and other intangible assets, net 384,991 386,552 387,976 391,125 Tangible common shareholders’ equity (non-GAAP) $ 1,100,839 $ 1,177,228 $ 1,302,351 $ 1,278,086 Total assets (GAAP) $ 16,385,197 $ 16,776,171 $ 16,804,872 $ 16,181,857 Exclude goodwill and other intangible assets, net 384,991 386,552 387,976 391,125 Total tangible assets (non-GAAP) $ 16,000,206 $ 16,389,619 $ 16,416,896 $ 15,790,732 Common shareholders’ equity to total assets (GAAP) 9.07 % 9.32 % 10.06 % 10.32 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 6.88 % 7.18 % 7.93 % 8.09 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE Tangible common shareholders’ equity (non-GAAP) $ 1,100,839 $ 1,177,228 $ 1,302,351 $ 1,278,086 Common shares outstanding at end of period 34,191,330 34,372,784 34,252,632 34,550,888 Common shareholders’ equity (book value) per share (GAAP) $ 43.46 $ 45.49 $ 49.35 $ 48.31 Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 32.20 $ 34.25 $ 38.02 $ 36.99 CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO PETER J. CONNER, CFO (509) 527-3636 
