• 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 15:00:01   America/Chicago

    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 ORIGINATIONSQuarters 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 OWNEDJun 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 SPREADQuarters 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 SPREADSix 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 REVENUEQuarters 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 EARNINGSQuarters 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



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