WALLA WALLA, Wash., Oct. 21, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank and Islanders Bank, today reported net income of $36.5 million, or $1.03 per diluted share, for the third quarter 2020, compared to $23.5 million, or $0.67 per diluted share, in the preceding quarter and $39.6 million, or $1.15 per diluted share, in the third quarter of 2019. Banner’s third quarter and year-to-date earnings reflect the continuing impact of the global COVID-19 pandemic. In the first nine months of 2020, net income was $77.0 million, or $2.17 per diluted share, compared to $112.6 million, or $3.23 per diluted share, in the first nine months a year ago. The results for the first nine months of 2020 include $1.5 million of acquisition-related expenses, compared to $3.1 million of acquisition-related expenses in the first nine months of 2019.
Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable November 12, 2020, to common shareholders of record on November 3, 2020.
“The continued successful execution of our super community bank strategy generated solid revenue growth compared to both the preceding quarter and the year ago quarter. Mortgage banking revenues more than doubled compared to a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates,” said Mark Grescovich, President and CEO. “Third quarter earnings were impacted by a number of items, including the allowance for credit losses based on the impact of the COVID-19 pandemic on the economy. As an additional way to support the communities we serve, during this period of economic adversity, the company committed $1.5 million to selected Community Development Financial Institutions (CDFIs) in support of minority-owned small businesses as well as businesses located in economically disadvantaged rural and urban communities. Further, as of September 30, 2020, Banner has provided SBA Paycheck Protection Program loans totaling nearly $1.15 billion to 9,103 businesses and provided deferred payments, or waived interest, on 3,370 loans totaling $1.09 billion. We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events.”
“Due to the pandemic, and its subsequent impact on our communities, we have proactively downgraded certain modified loans and other loans we consider at risk,” Grescovich said. “As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $168.0 million with the addition of $13.6 million in credit loss provisions during the quarter ended September 30, 2020. This provision compares to a $29.5 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago.” The allowance for credit losses - loans was 1.65% of total loans and 482% of non-performing loans at the end of the third quarter of 2020.
At September 30, 2020, Banner Corporation had $14.64 billion in assets, $10.00 billion in net loans and $12.22 billion in deposits. Banner operates 170 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
COVID-19 Pandemic Update
- SBA Paycheck Protection Program. The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. As of September 30, 2020, Banner had funded 9,103 applications totaling $1.15 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA was August 8, 2020. Banner is no longer accepting new applications for PPP loans and is preparing to process applications for PPP loan forgiveness beginning in the fourth quarter of 2020. Banner will continue to assist small businesses with other borrowing options as they become available.
- Loan Accommodations. Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or may be eligible for an additional deferral period for up to 90 days. In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months. Year to date, Banner has deferred payment or waived interest on 3,370 loans totaling $1.09 billion. Through September 30, 2020 the deferral period had ended for approximately 78%, or $849.7 million of these loans, leaving $239.6 million still on deferral. Of the loans still on deferral, 107 loans totaling $160.4 million have received a second deferral. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through September 30, 2020 pursuant to applicable accounting and regulatory guidance.
- Allowance for Credit Losses - Loans. Banner recorded a provision for credit losses of $13.6 million for the third quarter of 2020, compared to a $29.5 million provision in the preceding quarter and a $2.0 million provision for loan losses in the third quarter a year ago. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of September 30, 2020 and June 30, 2020, respectively.
- Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of its clients and personnel. To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner’s network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $778,000 of related costs during the third quarter of 2020, compared to $2.2 million of related costs in the second quarter of 2020.
- Capital Management. At September 30, 2020, the tangible common shareholders’ equity to tangible assets* ratio was 8.78% and Banner’s capital was well in excess of all regulatory requirements. On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. In response to the COVID-19 pandemic outbreak and to preserve capital, Banner has suspended repurchases of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.
Third Quarter 2020 Highlights
- Revenues increased to $149.2 million, compared to $147.3 million in the preceding quarter, and increased 9% when compared to $137.5 million in the third quarter a year ago.
- Net interest income, before the provision for credit losses, increased to $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.
- Net interest margin was 3.65%, compared to 3.81% in the preceding quarter and 4.25% in the third quarter a year ago.
- Net interest margin on a tax equivalent basis was 3.72%, compared to 3.87% in the preceding quarter and 4.29% in the third quarter a year ago.
- Mortgage banking revenues increased 17% to $16.6 million, compared to $14.1 million in the preceding quarter, and increased 150% compared to $6.6 million in the third quarter a year ago, reflecting strong refinance and purchase demand coupled with higher margins due to decreasing market interest rates.
- Return on average assets was 1.01%, compared to 0.68% in the preceding quarter and 1.31% in the third quarter a year ago.
- Net loans receivable decreased to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019.
- Non-performing assets decreased to $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets in the preceding quarter, and increased from $18.6 million, or 0.15% of total assets, at September 30, 2019.
- Provision for credit losses - loans was $13.6 million, and the allowance for credit losses - loans was $168.0 million, or 1.65% of total loans receivable, as of September 30, 2020, compared to $156.4 million, or 1.52% of total loans receivable as of June 30, 2020 and $97.8 million or 1.11% of total loans receivable as of September 30, 2019.
- A $1.5 million provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $12.1 million as of September 30, 2020, compared to $10.6 million as of June 30, 2020.
- Core deposits increased 3% to $11.30 billion at September 30, 2020, compared to $10.97 billion at June 30, 2020, and increased 33% compared to $8.51 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) represented 93% of total deposits at September 30, 2020.
- Dividends to shareholders were $0.41 per share in the quarter ended September 30, 2020.
- Common shareholders’ equity per share increased 1% to $46.83 at September 30, 2020, compared to $46.22 at the preceding quarter end, and increased 5% from $44.80 a year ago.
- Tangible common shareholders’ equity per share* increased 2% to $35.56 at September 30, 2020, compared to $34.89 at the preceding quarter end, and increased 4% from $34.10 a year ago.
*Tangible common shareholders’ equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.
Significant Recent Initiatives and Events
On September 25, 2020, Banner completed the consolidation of six branches. In addition, Banner has made the decision to consolidate another 14 branches in December of 2020. Client adoption of mobile and digital banking accelerated during the second and third quarters, while physical branch transaction volume declined. We believe this shift in client service delivery channel preference will sustain after the pandemic social distancing related restrictions have ended.
On July 22, 2020, Banner announced plans to merge Islanders Bank into Banner Bank. Regulatory approvals for the merger were received in October 2020, and the merger is expected to be completed in the first quarter of 2021.
On November 1, 2019, Banner completed the acquisition of AltaPacific Bancorp (AltaPacific) and its wholly-owned subsidiary, AltaPacific Bank, of Santa Rosa, California. At closing, AltaPacific Bank had six branch locations, including one in Northern California and five in Southern California. Pursuant to the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.
The AltaPacific merger was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date. The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner. During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner’s core systems and closure of overlapping branches.
Income Statement Review
Net interest income, before the provision for credit losses, was $121.0 million in the third quarter of 2020, compared to $119.6 million in the preceding quarter and $116.6 million in the third quarter a year ago.
Banner’s net interest margin on a tax equivalent basis was 3.72% for the third quarter of 2020, a 15 basis-point decrease compared to 3.87% in the preceding quarter and a 57 basis-point decrease compared to 4.29% in the third quarter a year ago.
“During the quarter, the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposits, resulting in significant growth in low yielding interest-bearing deposits, adversely impacted our net interest margin,” said Grescovich. Acquisition accounting adjustments added seven basis points to the net interest margin in both the current quarter and in the preceding quarter and six basis points in the third quarter a year ago. The total purchase discount for acquired loans was $17.9 million at September 30, 2020, compared to $20.2 million at June 30, 2020, and $21.3 million at September 30, 2019. In the first nine months of the year, Banner’s net interest margin on a tax equivalent basis was 3.93% compared to 4.38% in the first nine months of 2019.
Average interest-earning asset yields decreased 18 basis points to 3.98% in the third quarter compared to 4.16% for the preceding quarter and decreased 85 basis points compared to 4.83% in the third quarter a year ago. Average loan yields decreased ten basis points to 4.47% compared to 4.57% in the preceding quarter and decreased 77 basis points compared to 5.24% in the third quarter a year ago. Loan discount accretion added nine basis points to loan yields in the third quarter of 2020, compared to eight basis points in the preceding quarter and seven basis points in the third quarter a year ago. Deposit costs were 0.17% in the third quarter of 2020, a six basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the third quarter a year ago. The decrease in deposit costs during the current quarter compared to the preceding quarter was primarily the result of decreases in market interest rates earlier this year, as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates. The total cost of funds was 0.27% during the third quarter of 2020, a four basis-point decrease compared to the preceding quarter and a 30 basis-point decrease compared to the third quarter a year ago.
Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of September 30, 2020 and June 30, 2020, respectively.
Total non-interest income was $28.2 million in the third quarter of 2020, compared to $27.7 million in the preceding quarter and $20.9 million in the third quarter a year ago. Deposit fees and other service charges were $8.7 million in the third quarter of 2020, compared to $7.5 million in the preceding quarter and $10.3 million in the third quarter a year ago. The decrease in deposit fees and other service charges from the third quarter a year ago is primarily a result of fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $16.6 million in the third quarter, compared to $14.1 million in the preceding quarter and $6.6 million in the third quarter of 2019. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans. The increases compared to the third quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans due to increased production related to refinance activity as well as increased gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2020, compared to 42% in the prior quarter and 56% in the third quarter of 2019. In the first nine months of 2020, total non-interest income increased 22% to $75.1 million, compared to $61.7 million in the first nine months of 2019.
Banner’s third quarter 2020 results included a $37,000 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 as a result of the tightening of market spreads during the quarter, and a $644,000 net gain on the sale of securities, primarily as a result of the gain recognized on the sale of our Visa Class B shares. In the preceding quarter, results included a $2.2 million net gain for fair value adjustments and a $93,000 net gain on the sale of securities. In the third quarter a year ago, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.
Banner’s total revenue increased 1% to $149.2 million for the third quarter of 2020, compared to $147.3 million in the preceding quarter, and increased 9% compared to $137.5 million in the third quarter a year ago. Year-to-date, total revenues increased 6% to $435.0 million compared to $411.1 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $148.6 million in the third quarter of 2020, compared to $145.0 million in the preceding quarter and $137.6 million in the third quarter of 2019. In the first nine months of the year, adjusted revenue* was $436.5 million, compared to $411.3 million in the first nine months of 2019.
Total non-interest expense was $91.6 million in the third quarter of 2020, compared to $89.6 million in the preceding quarter and $87.3 million in the third quarter of 2019. The increase in non-interest expense reflects an increase in the provision for credit losses - unfunded commitments in the current quarter. The current quarter includes a $1.5 million of provision for credit losses - unfunded loan commitments compared to a $905,000 recapture of provision for the prior quarter and no provision for the year ago quarter. A reduction in capitalized loan origination costs during third quarter of 2020, primarily related to the decline in the origination of SBA PPP loans compared to the prior quarter, also contributed to the quarter-over-quarter increase in non-interest expense. The decrease in COVID-19 expenses during the current quarter as well as lower salary and employee benefits as a result of lower medical claims partially offset these increases. The year-over-year increase also reflects an FDIC credit of $2.7 million for previously paid deposit insurance premiums which resulted in a net deposit insurance benefit of $1.6 million for the quarter ended September 30, 2019. Acquisition-related expenses were $5,000 for the third quarter of 2020, compared to $336,000 for the preceding quarter and $676,000 in the third quarter a year ago. Year-to-date, total non-interest expense was $276.4 million, compared to $264.0 million in the same period a year earlier. Banner’s efficiency ratio was 61.35% for the current quarter, compared to 60.85% in the preceding quarter and 63.50% in the year ago quarter. Banner’s adjusted efficiency ratio* was 59.05% for the current quarter, compared to 57.95% in the preceding quarter and 60.71% in the year ago quarter.
For the third quarter of 2020, Banner had $7.5 million in state and federal income tax expense for an effective tax rate of 17.0%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.
Balance Sheet Review
Total assets increased 2% to $14.64 billion at September 30, 2020, compared to $14.41 billion at June 30, 2020, and increased 21% when compared to $12.10 billion at September 30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.63 billion at September 30, 2020, compared to $2.30 billion at June 30, 2020 and $1.87 billion at September 30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at September 30, 2020, compared to 3.1 years at September 30, 2019.
Net loans receivable decreased 1% to $10.00 billion at September 30, 2020, compared to $10.13 billion at June 30, 2020, and increased 14% when compared to $8.74 billion at September 30, 2019. The year-over-year increase in net loans reflects the origination of SBA PPP loans, primarily during the second quarter of 2020, which totaled $1.15 billion as of September 30, 2020 and also included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019. Commercial real estate and multifamily real estate loans decreased to $4.07 billion at September 30, 2020, compared to $4.11 billion at June 30, 2020, and increased 11% compared to $3.67 billion a year ago. Commercial business loans decreased 1% to $3.11 billion at September 30, 2020, compared to $3.15 billion at June 30, 2020, and increased 52% compared to $2.05 billion a year ago primarily due to SBA PPP loans. Agricultural business loans decreased to $326.2 million at September 30, 2020, compared to $328.1 million three months earlier and $356.0 million a year ago. Total construction, land and land development loans were $1.27 billion at September 30, 2020, a 3% increase from $1.24 billion at June 30, 2020, and a 9% increase compared to $1.16 billion a year earlier. Consumer loans decreased to $622.8 million at September 30, 2020, compared to $642.4 million at June 30, 2020, and $685.1 million a year ago. One- to four-family loans decreased to $771.4 million at September 30, 2020, compared to $817.8 million at June 30, 2020, and $909.0 million a year ago.
Loans held for sale were $185.9 million at September 30, 2020, compared to $258.7 million at June 30, 2020, and $244.9 million at September 30, 2019. The volume of one- to four- family residential mortgage loans sold was $327.7 million in the current quarter, compared to $292.4 million in the preceding quarter and $204.6 million in the third quarter a year ago. During the third quarter of 2020, Banner sold $108.6 million in multifamily loans compared to $3.1 million in the preceding quarter and $79.4 million in the third quarter a year ago. The lower level of multifamily loan sales in the second quarter of 2020 reflects a temporary disruption in the secondary market for multifamily loans as a result of the COVID-19 pandemic.
Total deposits increased 2% to $12.22 billion at September 30, 2020, compared to $12.02 billion at June 30, 2020, and increased 26% when compared to $9.73 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in deposits accounts due to changes in spending habits during the COVID-19 pandemic. The year-over-year increase in deposits also included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019. Non-interest-bearing account balances increased 2% to $5.41 billion at September 30, 2020, compared to $5.28 billion at June 30, 2020, and increased 39% compared to $3.89 billion a year ago. Core deposits increased 3% from the prior quarter and increased 33% compared to a year ago and represented 93% of total deposits at September 30, 2020, compared to 91% at June 30, 2020. Certificates of deposit decreased 12% to $915.4 million at September 30, 2020, compared to $1.04 billion at June 30, 2020, and decreased 25% compared to $1.22 billion a year earlier. Banner had no brokered deposits at September 30, 2020, compared to $119.4 million in brokered deposits at June 30, 2020 and $299.5 million a year ago. FHLB borrowings totaled $150.0 million at September 30, 2020, compared to $150.0 million at June 30, 2020, and $382.0 million a year earlier.
At September 30, 2020, total common shareholders’ equity was $1.65 billion, or 11.25% of assets, compared to $1.63 billion or 11.28% of assets at June 30, 2020, and $1.53 billion or 12.65% of assets a year ago. At September 30, 2020, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.25 billion, or 8.78% of tangible assets*, compared to $1.23 billion, or 8.76% of tangible assets, at June 30, 2020, and $1.17 billion, or 9.93% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $35.56 at September 30, 2020, compared to $34.10 per share a year ago.
Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At September 30, 2020, Banner's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 9.56%, and its total capital to risk-weighted assets ratio was 14.65%.
Credit Quality
The allowance for credit losses - loans was $168.0 million at September 30, 2020, or 1.65% of total loans receivable outstanding and 482% of non-performing loans, compared to $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, and $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% 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 $12.1 million at September 30, 2020, compared to $10.6 million at June 30, 2020 and $2.6 million at September 30, 2019. Net loan charge-offs totaled $2.0 million in the third quarter of 2020, compared to net loan charge-offs of $3.7 million in the preceding quarter and $2.5 million of net charge-offs in the third quarter a year ago. Banner recorded a $13.6 million provision for credit losses in the current quarter, compared to $29.5 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses. Non-performing loans were $34.8 million at September 30, 2020, compared to $37.4 million at June 30, 2020, and $18.3 million a year ago. Real estate owned and other repossessed assets were $1.8 million at September 30, 2020, compared to $2.4 million at June 30, 2020, and $343,000 a year ago.
In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date. At September 30, 2020, the total purchase discount for acquired loans was $17.9 million.
Banner’s total substandard loans were $423.2 million at September 30, 2020, compared to $359.8 million at June 30, 2020, and $113.2 million a year ago. The increase in substandard loans during the most recent quarters primarily reflects Banner proactively downgrading loans in industries most at risk due to COVID-19.
Banner’s total non-performing assets were $36.7 million, or 0.25% of total assets, at September 30, 2020, compared to $39.9 million, or 0.28% of total assets, at June 30, 2020, and $18.6 million, or 0.15% of total assets, a year ago.
Conference Call
Banner will host a conference call on Thursday, October 22, 2020, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10147897, or at www.bannerbank.com.
About the Company
Banner Corporation is a $14.64 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.
Forward-Looking Statements
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner’s operating and stock price performance.
The COVID-19, pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; and (16) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.
| RESULTS OF OPERATIONS | Quarters Ended | Nine Months Ended | ||||||||||||||||||
| (in thousands except shares and per share data) | Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | Sep 30, 2020 | Sep 30, 2019 | |||||||||||||||
| INTEREST INCOME: | ||||||||||||||||||||
| Loans receivable | $ | 116,716 | $ | 115,173 | $ | 118,096 | $ | 350,815 | $ | 350,558 | ||||||||||
| Mortgage-backed securities | 7,234 | 7,983 | 9,415 | 24,354 | 29,716 | |||||||||||||||
| Securities and cash equivalents | 5,631 | 5,591 | 3,925 | 14,824 | 11,996 | |||||||||||||||
| 129,581 | 128,747 | 131,436 | 389,993 | 392,270 | ||||||||||||||||
| INTEREST EXPENSE: | ||||||||||||||||||||
| Deposits | 5,179 | 6,694 | 10,014 | 20,623 | 27,680 | |||||||||||||||
| Federal Home Loan Bank advances | 988 | 984 | 3,107 | 4,036 | 9,953 | |||||||||||||||
| Other borrowings | 128 | 238 | 82 | 482 | 209 | |||||||||||||||
| Junior subordinated debentures and subordinated notes | 2,260 | 1,251 | 1,612 | 4,988 | 5,008 | |||||||||||||||
| 8,555 | 9,167 | 14,815 | 30,129 | 42,850 | ||||||||||||||||
| Net interest income before provision for credit losses | 121,026 | 119,580 | 116,621 | 359,864 | 349,420 | |||||||||||||||
| PROVISION FOR CREDIT LOSSES | 13,641 | 29,528 | 2,000 | 64,917 | 6,000 | |||||||||||||||
| Net interest income | 107,385 | 90,052 | 114,621 | 294,947 | 343,420 | |||||||||||||||
| NON-INTEREST INCOME: | ||||||||||||||||||||
| Deposit fees and other service charges | 8,742 | 7,546 | 10,331 | 26,091 | 36,995 | |||||||||||||||
| Mortgage banking operations | 16,562 | 14,138 | 6,616 | 40,891 | 15,967 | |||||||||||||||
| Bank-owned life insurance | 1,286 | 2,317 | 1,076 | 4,653 | 3,475 | |||||||||||||||
| Miscellaneous | 951 | 1,427 | 2,914 | 5,017 | 5,431 | |||||||||||||||
| 27,541 | 25,428 | 20,937 | 76,652 | 61,868 | ||||||||||||||||
| Net gain (loss) on sale of securities | 644 | 93 | (2 | ) | 815 | (29 | ) | |||||||||||||
| Net change in valuation of financial instruments carried at fair value | 37 | 2,199 | (69 | ) | (2,360 | ) | (172 | ) | ||||||||||||
| Total non-interest income | 28,222 | 27,720 | 20,866 | 75,107 | 61,667 | |||||||||||||||
| NON-INTEREST EXPENSE: | ||||||||||||||||||||
| Salary and employee benefits | 61,171 | 63,415 | 59,090 | 184,494 | 169,359 | |||||||||||||||
| Less capitalized loan origination costs | (8,517 | ) | (11,110 | ) | (7,889 | ) | (25,433 | ) | (20,137 | ) | ||||||||||
| Occupancy and equipment | 13,022 | 12,985 | 12,566 | 39,114 | 39,013 | |||||||||||||||
| Information / computer data services | 6,090 | 6,084 | 5,657 | 17,984 | 16,256 | |||||||||||||||
| Payment and card processing services | 4,044 | 3,851 | 4,330 | 12,135 | 12,355 | |||||||||||||||
| Professional and legal expenses | 2,368 | 2,163 | 2,704 | 6,450 | 7,474 | |||||||||||||||
| Advertising and marketing | 1,105 | 652 | 2,221 | 3,584 | 5,815 | |||||||||||||||
| Deposit insurance expense | 1,628 | 1,705 | (1,604 | ) | 4,968 | 1,232 | ||||||||||||||
| State/municipal business and use taxes | 1,196 | 1,104 | 1,011 | 3,284 | 2,963 | |||||||||||||||
| Real estate operations | (11 | ) | 4 | 126 | 93 | 263 | ||||||||||||||
| Amortization of core deposit intangibles | 1,864 | 2,002 | 1,985 | 5,867 | 6,090 | |||||||||||||||
| Provision/(recapture) for credit losses - unfunded loan commitments | 1,539 | (905 | ) | — | 2,356 | — | ||||||||||||||
| Miscellaneous | 5,285 | 5,199 | 6,435 | 16,841 | 20,230 | |||||||||||||||
| 90,784 | 87,149 | 86,632 | 271,737 | 260,913 | ||||||||||||||||
| COVID-19 expenses | 778 | 2,152 | — | 3,169 | — | |||||||||||||||
| Acquisition-related expenses | 5 | 336 | 676 | 1,483 | 3,125 | |||||||||||||||
| Total non-interest expense | 91,567 | 89,637 | 87,308 | 276,389 | 264,038 | |||||||||||||||
| Income before provision for income taxes | 44,040 | 28,135 | 48,179 | 93,665 | 141,049 | |||||||||||||||
| PROVISION FOR INCOME TAXES | 7,492 | 4,594 | 8,602 | 16,694 | 28,426 | |||||||||||||||
| NET INCOME | $ | 36,548 | $ | 23,541 | $ | 39,577 | $ | 76,971 | $ | 112,623 | ||||||||||
| Earnings per share available to common shareholders: | ||||||||||||||||||||
| Basic | $ | 1.04 | $ | 0.67 | $ | 1.15 | $ | 2.18 | $ | 3.24 | ||||||||||
| Diluted | $ | 1.03 | $ | 0.67 | $ | 1.15 | $ | 2.17 | $ | 3.23 | ||||||||||
| Cumulative dividends declared per common share | $ | 0.41 | $ | — | $ | 0.41 | $ | 0.82 | $ | 1.23 | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 35,193,109 | 35,189,260 | 34,407,462 | 35,285,567 | 34,760,607 | |||||||||||||||
| Diluted | 35,316,679 | 35,283,690 | 34,497,994 | 35,524,771 | 34,850,006 | |||||||||||||||
| Increase (decrease) in common shares outstanding | 669 | 55,440 | (400,286 | ) | (593,008 | ) | (1,009,415 | ) | ||||||||||||
| FINANCIAL CONDITION | Percentage Change | |||||||||||||||||||||||||||||
| (in thousands except shares and per share data) | Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | Prior Qtr | Prior Yr Qtr | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 289,144 | $ | 291,036 | $ | 234,359 | $ | 250,671 | (0.7 | ) | % | 15.3 | % | |||||||||||||||||
| Interest-bearing deposits | 416,394 | 128,938 | 73,376 | 73,785 | 222.9 | % | 464.3 | % | ||||||||||||||||||||||
| Total cash and cash equivalents | 705,538 | 419,974 | 307,735 | 324,456 | 68.0 | % | 117.5 | % | ||||||||||||||||||||||
| Securities - trading | 23,276 | 23,239 | 25,636 | 25,672 | 0.2 | % | (9.3 | ) | % | |||||||||||||||||||||
| Securities - available for sale | 1,758,384 | 1,706,781 | 1,551,557 | 1,539,908 | 3.0 | % | 14.2 | % | ||||||||||||||||||||||
| Securities - held to maturity | 429,033 | 441,075 | 236,094 | 230,056 | (2.7 | ) | % | 86.5 | % | |||||||||||||||||||||
| Total securities | 2,210,693 | 2,171,095 | 1,813,287 | 1,795,636 | 1.8 | % | 23.1 | % | ||||||||||||||||||||||
| Equity securities | 450,255 | 340,052 | — | — | 32.4 | % | nm | |||||||||||||||||||||||
| Federal Home Loan Bank stock | 16,363 | 16,363 | 28,342 | 25,623 | — | % | (36.1 | ) | % | |||||||||||||||||||||
| Loans held for sale | 185,938 | 258,700 | 210,447 | 244,889 | (28.1 | ) | % | (24.1 | ) | % | ||||||||||||||||||||
| Loans receivable | 10,163,917 | 10,283,999 | 9,305,357 | 8,835,368 | (1.2 | ) | % | 15.0 | % | |||||||||||||||||||||
| Allowance for credit losses - loans | (167,965 | ) | (156,352 | ) | (100,559 | ) | (97,801 | ) | 7.4 | % | 71.7 | % | ||||||||||||||||||
| Net loans receivable | 9,995,952 | 10,127,647 | 9,204,798 | 8,737,567 | (1.3 | ) | % | 14.4 | % | |||||||||||||||||||||
| Accrued interest receivable | 48,321 | 48,806 | 37,962 | 40,033 | (1.0 | ) | % | 20.7 | % | |||||||||||||||||||||
| Real estate owned held for sale, net | 1,795 | 2,400 | 814 | 228 | (25.2 | ) | % | 687.3 | % | |||||||||||||||||||||
| Property and equipment, net | 171,576 | 173,360 | 178,008 | 171,279 | (1.0 | ) | % | 0.2 | % | |||||||||||||||||||||
| Goodwill | 373,121 | 373,121 | 373,121 | 339,154 | — | % | 10.0 | % | ||||||||||||||||||||||
| Other intangibles, net | 23,291 | 25,155 | 29,158 | 26,610 | (7.4 | ) | % | (12.5 | ) | % | ||||||||||||||||||||
| Bank-owned life insurance | 191,755 | 190,468 | 192,088 | 179,076 | 0.7 | % | 7.1 | % | ||||||||||||||||||||||
| Other assets | 267,477 | 258,466 | 228,271 | 213,291 | 3.5 | % | 25.4 | % | ||||||||||||||||||||||
| Total assets | $ | 14,642,075 | $ | 14,405,607 | $ | 12,604,031 | $ | 12,097,842 | 1.6 | % | 21.0 | % | ||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||||||||||
| Non-interest-bearing | $ | 5,412,570 | $ | 5,281,559 | $ | 3,945,000 | $ | 3,885,210 | 2.5 | % | 39.3 | % | ||||||||||||||||||
| Interest-bearing transaction and savings accounts | 5,887,419 | 5,692,715 | 4,983,238 | 4,624,970 | 3.4 | % | 27.3 | % | ||||||||||||||||||||||
| Interest-bearing certificates | 915,352 | 1,042,006 | 1,120,403 | 1,218,591 | (12.2 | ) | % | (24.9 | ) | % | ||||||||||||||||||||
| Total deposits | 12,215,341 | 12,016,280 | 10,048,641 | 9,728,771 | 1.7 | % | 25.6 | % | ||||||||||||||||||||||
| Advances from Federal Home Loan Bank | 150,000 | 150,000 | 450,000 | 382,000 | — | % | (60.7 | ) | % | |||||||||||||||||||||
| Customer repurchase agreements and other borrowings | 176,983 | 166,084 | 118,474 | 120,014 | 6.6 | % | 47.5 | % | ||||||||||||||||||||||
| Subordinated notes, net | 98,114 | 98,140 | — | — | — | % | nm | |||||||||||||||||||||||
| Junior subordinated debentures at fair value | 109,821 | 109,613 | 119,304 | 113,417 | 0.2 | % | (3.2 | ) | % | |||||||||||||||||||||
| Accrued expenses and other liabilities | 200,038 | 194,964 | 227,889 | 181,351 | 2.6 | % | 10.3 | % | ||||||||||||||||||||||
| Deferred compensation | 45,249 | 45,423 | 45,689 | 41,354 | (0.4 | ) | % | 9.4 | % | |||||||||||||||||||||
| Total liabilities | 12,995,546 | 12,780,504 | 11,009,997 | 10,566,907 | 1.7 | % | 23.0 | % | ||||||||||||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||
| Common stock | 1,347,612 | 1,345,096 | 1,373,940 | 1,286,711 | 0.2 | % | 4.7 | % | ||||||||||||||||||||||
| Retained earnings | 222,959 | 201,448 | 186,838 | 203,704 | 10.7 | % | 9.5 | % | ||||||||||||||||||||||
| Other components of shareholders’ equity | 75,958 | 78,559 | 33,256 | 40,520 | (3.3 | ) | % | 87.5 | % | |||||||||||||||||||||
| Total shareholders’ equity | 1,646,529 | 1,625,103 | 1,594,034 | 1,530,935 | 1.3 | % | 7.6 | % | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 14,642,075 | $ | 14,405,607 | $ | 12,604,031 | $ | 12,097,842 | 1.6 | % | 21.0 | % | ||||||||||||||||||
| Common Shares Issued: | ||||||||||||||||||||||||||||||
| Shares outstanding at end of period | 35,158,568 | 35,157,899 | 35,751,576 | 34,173,357 | ||||||||||||||||||||||||||
| Common shareholders’ equity per share (1) | $ | 46.83 | $ | 46.22 | $ | 44.59 | $ | 44.80 | ||||||||||||||||||||||
| Common shareholders’ tangible equity per share (1) (2) | $ | 35.56 | $ | 34.89 | $ | 33.33 | $ | 34.10 | ||||||||||||||||||||||
| Common shareholders’ tangible equity to tangible assets (2) | 8.78 | % | 8.76 | % | 9.77 | % | 9.93 | % | ||||||||||||||||||||||
| Consolidated Tier 1 leverage capital ratio | 9.56 | % | 9.83 | % | 10.71 | % | 10.70 | % | ||||||||||||||||||||||
| (1) | Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding. |
| (2) | Common shareholders’ tangible equity excludes goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final two pages of the press release tables. |
| ADDITIONAL FINANCIAL INFORMATION | ||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Percentage Change | ||||||||||||||||||||||||
| LOANS | Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | Prior Qtr | Prior Yr Qtr | ||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||
| Owner-occupied | $ | 1,049,877 | $ | 1,027,399 | $ | 980,021 | $ | 883,233 | 2.2 | % | 18.9 | % | ||||||||||||
| Investment properties | 1,991,258 | 2,017,789 | 2,024,988 | 1,867,593 | (1.3 | ) | % | 6.6 | % | |||||||||||||||
| Small balance CRE | 597,971 | 624,726 | 613,484 | 609,620 | (4.3 | ) | % | (1.9 | ) | % | ||||||||||||||
| Multifamily real estate | 426,659 | 437,201 | 388,388 | 314,447 | (2.4 | ) | % | 35.7 | % | |||||||||||||||
| Construction, land and land development: | ||||||||||||||||||||||||
| Commercial construction | 220,285 | 215,860 | 210,668 | 190,532 | 2.0 | % | 15.6 | % | ||||||||||||||||
| Multifamily construction | 291,105 | 256,335 | 233,610 | 214,878 | 13.6 | % | 35.5 | % | ||||||||||||||||
| One- to four-family construction | 518,085 | 528,966 | 544,308 | 507,674 | (2.1 | ) | % | 2.1 | % | |||||||||||||||
| Land and land development | 240,803 | 235,602 | 245,530 | 250,681 | 2.2 | % | (3.9 | ) | % | |||||||||||||||
| Commercial business: | ||||||||||||||||||||||||
| Commercial business | 2,343,619 | 2,372,216 | 1,364,650 | 1,277,089 | (1.2 | ) | % | 83.5 | % | |||||||||||||||
| Small business scored | 763,824 | 779,678 | 772,657 | 769,538 | (2.0 | ) | % | (0.7 | ) | % | ||||||||||||||
| Agricultural business, including secured by farmland | 326,169 | 328,077 | 337,271 | 355,994 | (0.6 | ) | % | (8.4 | ) | % | ||||||||||||||
| One- to four-family residential | 771,431 | 817,787 | 925,531 | 908,988 | (5.7 | ) | % | (15.1 | ) | % | ||||||||||||||
| Consumer: | ||||||||||||||||||||||||
| Consumer—home equity revolving lines of credit | 504,523 | 515,603 | 519,336 | 534,876 | (2.1 | ) | % | (5.7 | ) | % | ||||||||||||||
| Consumer—other | 118,308 | 126,760 | 144,915 | 150,225 | (6.7 | ) | % | (21.2 | ) | % | ||||||||||||||
| Total loans receivable | $ | 10,163,917 | $ | 10,283,999 | $ | 9,305,357 | $ | 8,835,368 | (1.2 | ) | % | 15.0 | % | |||||||||||
| Restructured loans performing under their restructured terms | $ | 5,790 | $ | 6,391 | $ | 6,466 | $ | 6,721 | ||||||||||||||||
| Loans 30 - 89 days past due and on accrual | $ | 18,158 | $ | 20,807 | $ | 20,178 | $ | 11,496 | ||||||||||||||||
| Total delinquent loans (including loans on non-accrual), net | $ | 37,464 | $ | 36,269 | $ | 38,322 | $ | 26,830 | ||||||||||||||||
| Total delinquent loans / Total loans receivable | 0.37 | % | 0.35 | % | 0.41 | % | 0.30 | % | ||||||||||||||||
| LOANS BY GEOGRAPHIC LOCATION | Percentage Change | |||||||||||||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | Prior Qtr | Prior Yr Qtr | |||||||||||||||||||||
| Amount | Percentage | Amount | Amount | Amount | ||||||||||||||||||||||
| Washington | $ | 4,767,113 | 46.8 | % | $ | 4,787,550 | $ | 4,364,764 | $ | 4,313,972 | (0.4 | ) | % | 10.5 | % | |||||||||||
| California | 2,316,739 | 22.8 | % | 2,359,703 | 2,129,789 | 1,729,208 | (1.8 | ) | % | 34.0 | % | |||||||||||||||
| Oregon | 1,858,465 | 18.3 | % | 1,899,933 | 1,650,704 | 1,615,192 | (2.2 | ) | % | 15.1 | % | |||||||||||||||
| Idaho | 576,983 | 5.7 | % | 592,515 | 530,016 | 552,523 | (2.6 | ) | % | 4.4 | % | |||||||||||||||
| Utah | 76,314 | 0.8 | % | 67,929 | 60,958 | 62,197 | 12.3 | % | 22.7 | % | ||||||||||||||||
| Other | 568,303 | 5.6 | % | 576,369 | 569,126 | 562,276 | (1.4 | ) | % | 1.1 | % | |||||||||||||||
| Total loans receivable | $ | 10,163,917 | 100.0 | % | $ | 10,283,999 | $ | 9,305,357 | $ | 8,835,368 | (1.2 | ) | % | 15.0 | % | |||||||||||
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
The following table shows loan originations (excluding loans held for sale) activity for the quarters ending September 30, 2020, June 30, 2020, and September 30, 2019.
| LOAN ORIGINATIONS | Quarters Ended | ||||||||||
| Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | |||||||||
| Commercial real estate | $ | 74,400 | $ | 111,765 | $ | 106,690 | |||||
| Multifamily real estate | 2,664 | 6,384 | 27,522 | ||||||||
| Construction and land | 412,463 | 290,955 | 303,151 | ||||||||
| Commercial business | 153,577 | 1,318,438 | 208,277 | ||||||||
| Agricultural business | 16,990 | 16,293 | 10,993 | ||||||||
| One-to four-family residential | 32,733 | 24,537 | 27,184 | ||||||||
| Consumer | 132,100 | 126,653 | 99,823 | ||||||||
| Total loan originations (excluding loans held for sale) | $ | 824,927 | $ | 1,895,025 | $ | 783,640 | |||||
| ADDITIONAL FINANCIAL INFORMATION | ||||||||||||
| (dollars in thousands) | ||||||||||||
| Quarters Ended | ||||||||||||
| CHANGE IN THE | Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | |||||||||
| ALLOWANCE FOR CREDIT LOSSES - LOANS | ||||||||||||
| Balance, beginning of period | $ | 156,352 | $ | 130,488 | $ | 98,254 | ||||||
| Provision for credit losses - loans | 13,641 | 29,524 | 2,000 | |||||||||
| Recoveries of loans previously charged off: | ||||||||||||
| Commercial real estate | 23 | 54 | 107 | |||||||||
| Construction and land | — | 105 | 156 | |||||||||
| One- to four-family real estate | 94 | 31 | 129 | |||||||||
| Commercial business | 246 | 370 | 162 | |||||||||
| Agricultural business, including secured by farmland | — | 22 | 2 | |||||||||
| Consumer | 82 | 60 | 154 | |||||||||
| 445 | 642 | 710 | ||||||||||
| Loans charged off: | ||||||||||||
| Commercial real estate | (379) | — | (314) | |||||||||
| Construction and land | — | (100) | — | |||||||||
| One- to four-family real estate | (72) | — | (86) | |||||||||
| Commercial business | (1,297) | (3,553) | (1,599) | |||||||||
| Agricultural business, including secured by farmland | (492) | (62) | (741) | |||||||||
| Consumer | (233) | (587) | (423) | |||||||||
| (2,473) | (4,302) | (3,163) | ||||||||||
| Net (charge-offs)/recoveries | (2,028) | (3,660) | (2,453) | |||||||||
| Balance, end of period | $ | 167,965 | $ | 156,352 | $ | 97,801 | ||||||
| Net (charge-offs)/recoveries / Average loans receivable | (0.019) | % | (0.036) | % | (0.027) | % | ||||||
| ALLOCATION OF | ||||||||||||
| ALLOWANCE FOR CREDIT LOSSES - LOANS | Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | |||||||||
| Specific or allocated credit loss allowance: | ||||||||||||
| Commercial real estate | $ | 59,705 | $ | 53,166 | $ | 28,515 | ||||||
| Multifamily real estate | 3,256 | 3,504 | 4,283 | |||||||||
| Construction and land | 39,477 | 36,916 | 22,569 | |||||||||
| One- to four-family real estate | 12,868 | 12,746 | 4,569 | |||||||||
| Commercial business | 35,369 | 33,870 | 21,147 | |||||||||
| Agricultural business, including secured by farmland | 5,051 | 4,517 | 3,895 | |||||||||
| Consumer | 12,239 | 11,633 | 8,441 | |||||||||
| Total allocated | 167,965 | 156,352 | 93,419 | |||||||||
| Unallocated | — | — | 4,382 | |||||||||
| Total allowance for credit losses - loans | $ | 167,965 | $ | 156,352 | $ | 97,801 | ||||||
| Allowance for credit losses - loans / Total loans receivable | 1.65 | % | 1.52 | % | 1.11 | % | ||||||
| Allowance for credit losses - loans / Non-performing loans | 482 | % | 418 | % | 536 | % | ||||||
| Quarters Ended | ||||||||||||
| CHANGE IN THE | Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | |||||||||
| ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS | ||||||||||||
| Balance, beginning of period | $ | 10,555 | $ | 11,460 | $ | 2,599 | ||||||
| Provision/(recapture) for credit losses - unfunded loan commitments | 1,539 | (905) | — | |||||||||
| Balance, end of period | $ | 12,094 | $ | 10,555 | $ | 2,599 | ||||||
| ADDITIONAL FINANCIAL INFORMATION | |||||||||||||||
| (dollars in thousands) | |||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | ||||||||||||
| NON-PERFORMING ASSETS | |||||||||||||||
| Loans on non-accrual status: | |||||||||||||||
| Secured by real estate: | |||||||||||||||
| Commercial | $ | 7,824 | $ | 10,845 | $ | 5,952 | $ | 5,092 | |||||||
| Multifamily | — | — | 85 | 87 | |||||||||||
| Construction and land | 937 | 732 | 1,905 | 1,318 | |||||||||||
| One- to four-family | 2,978 | 2,942 | 3,410 | 3,007 | |||||||||||
| Commercial business | 14,867 | 18,486 | 23,015 | 3,035 | |||||||||||
| Agricultural business, including secured by farmland | 2,066 | 433 | 661 | 757 | |||||||||||
| Consumer | 2,896 | 2,412 | 2,473 | 2,473 | |||||||||||
| 31,568 | 35,850 | 37,501 | 15,769 | ||||||||||||
| Loans more than 90 days delinquent, still on accrual: | |||||||||||||||
| Secured by real estate: | |||||||||||||||
| Commercial | — | — | 89 | 89 | |||||||||||
| Construction and land | — | — | 332 | 1,141 | |||||||||||
| One- to four-family | 2,649 | 472 | 877 | 652 | |||||||||||
| Commercial business | 425 | 1 | 401 | 358 | |||||||||||
| Agricultural business, including secured by farmland | — | 1,061 | — | — | |||||||||||
| Consumer | 181 | 36 | 398 | 247 | |||||||||||
| 3,255 | 1,570 | 2,097 | 2,487 | ||||||||||||
| Total non-performing loans | 34,823 | 37,420 | 39,598 | 18,256 | |||||||||||
| Real estate owned (REO) | 1,795 | 2,400 | 814 | 228 | |||||||||||
| Other repossessed assets | 37 | 47 | 122 | 115 | |||||||||||
| Total non-performing assets | $ | 36,655 | $ | 39,867 | $ | 40,534 | $ | 18,599 | |||||||
| Total non-performing assets to total assets | 0.25 | % | 0.28 | % | 0.32 | % | 0.15 | % | |||||||
| Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | ||||||||||||
| LOANS BY CREDIT RISK RATING | |||||||||||||||
| Pass | $ | 9,699,098 | $ | 9,869,917 | $ | 9,130,662 | $ | 8,702,171 | |||||||
| Special Mention | 41,575 | 54,291 | 61,189 | 19,989 | |||||||||||
| Substandard | 423,244 | 359,791 | 113,448 | 113,150 | |||||||||||
| Doubtful | — | — | 58 | 58 | |||||||||||
| Total | $ | 10,163,917 | $ | 10,283,999 | $ | 9,305,357 | $ | 8,835,368 | |||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||
| REAL ESTATE OWNED | Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | Sep 30, 2020 | Sep 30, 2019 | ||||||||||||||
| Balance, beginning of period | $ | 2,400 | $ | 2,402 | $ | 2,513 | $ | 814 | $ | 2,611 | |||||||||
| Additions from loan foreclosures | — | — | 48 | 1,588 | 109 | ||||||||||||||
| Proceeds from dispositions of REO | (707 | ) | (98 | ) | (2,333 | ) | (805 | ) | (2,483 | ) | |||||||||
| Gain (loss) on sale of REO | 120 | 96 | — | 216 | (9 | ) | |||||||||||||
| Valuation adjustments in the period | (18 | ) | — | — | (18 | ) | — | ||||||||||||
| Balance, end of period | $ | 1,795 | $ | 2,400 | $ | 228 | $ | 1,795 | $ | 228 | |||||||||
| ADDITIONAL FINANCIAL INFORMATION | ||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| DEPOSIT COMPOSITION | Percentage Change | |||||||||||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | Prior Qtr | Prior Yr Qtr | |||||||||||||||||||
| Non-interest-bearing | $ | 5,412,570 | $ | 5,281,559 | $ | 3,945,000 | $ | 3,885,210 | 2.5 | % | 39.3 | % | ||||||||||||
| Interest-bearing checking | 1,434,224 | 1,399,593 | 1,280,003 | 1,209,826 | 2.5 | % | 18.5 | % | ||||||||||||||||
| Regular savings accounts | 2,332,287 | 2,197,790 | 1,934,041 | 1,863,839 | 6.1 | % | 25.1 | % | ||||||||||||||||
| Money market accounts | 2,120,908 | 2,095,332 | 1,769,194 | 1,551,305 | 1.2 | % | 36.7 | % | ||||||||||||||||
| Total interest-bearing transaction and savings accounts | 5,887,419 | 5,692,715 | 4,983,238 | 4,624,970 | 3.4 | % | 27.3 | % | ||||||||||||||||
| Total core deposits | 11,299,989 | 10,974,274 | 8,928,238 | 8,510,180 | 3.0 | % | 32.8 | % | ||||||||||||||||
| Interest-bearing certificates | 915,352 | 1,042,006 | 1,120,403 | 1,218,591 | (12.2 | ) | % | (24.9 | ) | % | ||||||||||||||
| Total deposits | $ | 12,215,341 | $ | 12,016,280 | $ | 10,048,641 | $ | 9,728,771 | 1.7 | % | 25.6 | % | ||||||||||||
| GEOGRAPHIC CONCENTRATION OF DEPOSITS | |||||||||||||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | Percentage Change | |||||||||||||||||||||
| Amount | Percentage | Amount | Amount | Amount | Prior Qtr | Prior Yr Qtr | |||||||||||||||||||
| Washington | $ | 6,820,329 | 55.8 | % | $ | 6,765,186 | $ | 5,861,809 | $ | 5,833,547 | 0.8 | % | 16.9 | % | |||||||||||
| Oregon | 2,486,760 | 20.4 | % | 2,440,617 | 2,006,163 | 1,990,155 | 1.9 | % | 25.0 | % | |||||||||||||||
| California | 2,254,681 | 18.4 | % | 2,224,477 | 1,698,289 | 1,429,939 | 1.4 | % | 57.7 | % | |||||||||||||||
| Idaho | 653,571 | 5.4 | % | 586,000 | 482,380 | 475,130 | 11.5 | % | 37.6 | % | |||||||||||||||
| Total deposits | $ | 12,215,341 | 100.0 | % | $ | 12,016,280 | $ | 10,048,641 | $ | 9,728,771 | 1.7 | % | 25.6 | % | |||||||||||
| INCLUDED IN TOTAL DEPOSITS | Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | ||||||||||||
| Public non-interest-bearing accounts | $ | 142,415 | $ | 139,133 | $ | 111,015 | $ | 114,879 | ||||||||
| Public interest-bearing transaction & savings accounts | 117,514 | 136,039 | 133,403 | 119,729 | ||||||||||||
| Public interest-bearing certificates | 54,219 | 56,609 | 35,184 | 26,609 | ||||||||||||
| Total public deposits | $ | 314,148 | $ | 331,781 | $ | 279,602 | $ | 261,217 | ||||||||
| Total brokered deposits | $ | — | $ | 119,399 | $ | 202,884 | $ | 299,496 | ||||||||
| ADDITIONAL FINANCIAL INFORMATION | |||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||
| Actual | Minimum to be categorized as "Adequately Capitalized" | Minimum to be categorized as "Well Capitalized" | |||||||||||||||||||
| REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2020 | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||
| Banner Corporation-consolidated: | |||||||||||||||||||||
| Total capital to risk-weighted assets | $ | 1,574,737 | 14.65 | % | $ | 859,979 | 8.00 | % | $ | 1,074,974 | 10.00 | % | |||||||||
| Tier 1 capital to risk-weighted assets | 1,340,173 | 12.47 | % | 644,985 | 6.00 | % | 644,985 | 6.00 | % | ||||||||||||
| Tier 1 leverage capital to average assets | 1,340,173 | 9.56 | % | 560,816 | 4.00 | % | n/a | n/a | |||||||||||||
| Common equity tier 1 capital to risk-weighted assets | 1,196,673 | 11.13 | % | 483,738 | 4.50 | % | n/a | n/a | |||||||||||||
| Banner Bank: | |||||||||||||||||||||
| Total capital to risk-weighted assets | 1,409,158 | 13.34 | % | 845,076 | 8.00 | % | 1,056,344 | 10.00 | % | ||||||||||||
| Tier 1 capital to risk-weighted assets | 1,276,928 | 12.09 | % | 633,807 | 6.00 | % | 845,076 | 8.00 | % | ||||||||||||
| Tier 1 leverage capital to average assets | 1,276,928 | 9.31 | % | 548,867 | 4.00 | % | 686,083 | 5.00 | % | ||||||||||||
| Common equity tier 1 capital to risk-weighted assets | 1,276,928 | 12.09 | % | 475,355 | 4.50 | % | 686,624 | 6.50 | % | ||||||||||||
| Islanders Bank: | |||||||||||||||||||||
| Total capital to risk-weighted assets | 29,516 | 15.14 | % | 15,594 | 8.00 | % | 19,493 | 10.00 | % | ||||||||||||
| Tier 1 capital to risk-weighted assets | 27,077 | 13.89 | % | 11,696 | 6.00 | % | 15,594 | 8.00 | % | ||||||||||||
| Tier 1 leverage capital to average assets | 27,077 | 8.15 | % | 13,289 | 4.00 | % | 16,611 | 5.00 | % | ||||||||||||
| Common equity tier 1 capital to risk-weighted assets | 27,077 | 13.89 | % | 8,772 | 4.50 | % | 12,671 | 6.50 | % | ||||||||||||
| ADDITIONAL FINANCIAL INFORMATION | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| (rates / ratios annualized) | |||||||||||||||||||||||||||||||||||
| ANALYSIS OF NET INTEREST SPREAD | Quarters Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2020 | June 30, 2020 | September 30, 2019 | |||||||||||||||||||||||||||||||||
| Average Balance | Interest and Dividends | Yield / Cost(3) | Average Balance | Interest and Dividends | Yield / Cost(3) | Average Balance | Interest and Dividends | Yield / Cost(3) | |||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Held for sale loans | $ | 161,385 | $ | 1,535 | 3.78 | % | $ | 152,636 | $ | 1,451 | 3.82 | % | $ | 154,529 | $ | 1,607 | 4.13 | % | |||||||||||||||||
| Mortgage loans | 7,339,181 | 88,011 | 4.77 | % | 7,314,125 | 87,172 | 4.79 | % | 6,872,426 | 90,268 | 5.21 | % | |||||||||||||||||||||||
| Commercial/agricultural loans | 2,862,291 | 26,396 | 3.67 | % | 2,599,878 | 25,200 | 3.90 | % | 1,809,397 | 24,319 | 5.33 | % | |||||||||||||||||||||||
| Consumer and other loans | 140,493 | 2,195 | 6.22 | % | 152,438 | 2,361 | 6.23 | % | 173,342 | 2,791 | 6.39 | % | |||||||||||||||||||||||
| Total loans(1)(3) | 10,503,350 | 118,137 | 4.47 | % | 10,219,077 | 116,184 | 4.57 | % | 9,009,694 | 118,985 | 5.24 | % | |||||||||||||||||||||||
| Mortgage-backed securities | 1,250,759 | 7,333 | 2.33 | % | 1,286,223 | 8,083 | 2.53 | % | 1,358,448 | 9,484 | 2.77 | % | |||||||||||||||||||||||
| Other securities | 884,916 | 6,036 | 2.71 | % | 787,957 | 5,859 | 2.99 | % | 414,994 | 3,378 | 3.23 | % | |||||||||||||||||||||||
| Equity securities | 379,483 | 186 | 0.19 | % | 114,349 | 123 | 0.43 | % | — | — | — | % | |||||||||||||||||||||||
| Interest-bearing deposits with banks | 171,894 | 123 | 0.28 | % | 212,502 | 172 | 0.33 | % | 82,836 | 489 | 2.34 | % | |||||||||||||||||||||||
| FHLB stock | 16,363 | 163 | 3.96 | % | 16,620 | 300 | 7.26 | % | 29,400 | 378 | 5.10 | % | |||||||||||||||||||||||
| Total investment securities (3) | 2,703,415 | 13,841 | 2.04 | % | 2,417,651 | 14,537 | 2.42 | % | 1,885,678 | 13,729 | 2.89 | % | |||||||||||||||||||||||
| Total interest-earning assets | 13,206,765 | 131,978 | 3.98 | % | 12,636,728 | 130,721 | 4.16 | % | 10,895,372 | 132,714 | 4.83 | % | |||||||||||||||||||||||
| Non-interest-earning assets | 1,259,816 | 1,245,626 | 1,078,621 | ||||||||||||||||||||||||||||||||
| Total assets | $ | 14,466,581 | $ | 13,882,354 | $ | 11,973,993 | |||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Interest-bearing checking accounts | $ | 1,413,085 | 321 | 0.09 | % | $ | 1,376,710 | 374 | 0.11 | % | $ | 1,194,633 | 621 | 0.21 | % | ||||||||||||||||||||
| Savings accounts | 2,251,294 | 813 | 0.14 | % | 2,108,896 | 998 | 0.19 | % | 1,854,967 | 2,244 | 0.48 | % | |||||||||||||||||||||||
| Money market accounts | 2,096,037 | 1,224 | 0.23 | % | 1,979,419 | 1,565 | 0.32 | % | 1,542,264 | 2,944 | 0.76 | % | |||||||||||||||||||||||
| Certificates of deposit | 966,028 | 2,821 | 1.16 | % | 1,117,547 | 3,757 | 1.35 | % | 1,155,710 | 4,205 | 1.44 | % | |||||||||||||||||||||||
| Total interest-bearing deposits | 6,726,444 | 5,179 | 0.31 | % | 6,582,572 | 6,694 | 0.41 | % | 5,747,574 | 10,014 | 0.69 | % | |||||||||||||||||||||||
| Non-interest-bearing deposits | 5,340,688 | — | — | % | 4,902,992 | — | — | % | 3,786,143 | — | — | % | |||||||||||||||||||||||
| Total deposits | 12,067,132 | 5,179 | 0.17 | % | 11,485,564 | 6,694 | 0.23 | % | 9,533,717 | 10,014 | 0.42 | % | |||||||||||||||||||||||
| Other interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| FHLB advances | 150,000 | 988 | 2.62 | % | 156,374 | 984 | 2.53 | % | 476,435 | 3,107 | 2.59 | % | |||||||||||||||||||||||
| Other borrowings | 177,628 | 128 | 0.29 | % | 285,735 | 238 | 0.34 | % | 122,035 | 82 | 0.27 | % | |||||||||||||||||||||||
| Junior subordinated debentures and subordinated notes | 247,944 | 2,260 | 3.63 | % | 149,043 | 1,251 | 3.38 | % | 140,212 | 1,612 | 4.56 | % | |||||||||||||||||||||||
| Total borrowings | 575,572 | 3,376 | 2.33 | % | 591,152 | 2,473 | 1.68 | % | 738,682 | 4,801 | 2.58 | % | |||||||||||||||||||||||
| Total funding liabilities | 12,642,704 | 8,555 | 0.27 | % | 12,076,716 | 9,167 | 0.31 | % | 10,272,399 | 14,815 | 0.57 | % | |||||||||||||||||||||||
| Other non-interest-bearing liabilities(2) | 193,256 | 188,369 | 163,809 | ||||||||||||||||||||||||||||||||
| Total liabilities | 12,835,960 | 12,265,085 | 10,436,208 | ||||||||||||||||||||||||||||||||
| Shareholders’ equity | 1,630,621 | 1,617,269 | 1,537,785 | ||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 14,466,581 | $ | 13,882,354 | $ | 11,973,993 | |||||||||||||||||||||||||||||
| Net interest income/rate spread (tax equivalent) | $ | 123,423 | 3.71 | % | $ | 121,554 | 3.85 | % | $ | 117,899 | 4.26 | % | |||||||||||||||||||||||
| Net interest margin (tax equivalent) | 3.72 | % | 3.87 | % | 4.29 | % | |||||||||||||||||||||||||||||
| Reconciliation to reported net interest income: | |||||||||||||||||||||||||||||||||||
| Adjustments for taxable equivalent basis | (2,397 | ) | (1,974 | ) | (1,278 | ) | |||||||||||||||||||||||||||||
| Net interest income and margin, as reported | $ | 121,026 | 3.65 | % | $ | 119,580 | 3.81 | % | $ | 116,621 | 4.25 | % | |||||||||||||||||||||||
| Additional Key Financial Ratios: | |||||||||||||||||||||||||||||||||||
| Return on average assets | 1.01 | % | 0.68 | % | 1.31 | % | |||||||||||||||||||||||||||||
| Return on average equity | 8.92 | % | 5.85 | % | 10.21 | % | |||||||||||||||||||||||||||||
| Average equity/average assets | 11.27 | % | 11.65 | % | 12.84 | % | |||||||||||||||||||||||||||||
| Average interest-earning assets/average interest-bearing liabilities | 180.86 | % | 176.15 | % | 167.98 | % | |||||||||||||||||||||||||||||
| Average interest-earning assets/average funding liabilities | 104.46 | % | 104.64 | % | 106.06 | % | |||||||||||||||||||||||||||||
| Non-interest income/average assets | 0.78 | % | 0.80 | % | 0.69 | % | |||||||||||||||||||||||||||||
| Non-interest expense/average assets | 2.52 | % | 2.60 | % | 2.89 | % | |||||||||||||||||||||||||||||
| Efficiency ratio(4) | 61.35 | % | 60.85 | % | 63.50 | % | |||||||||||||||||||||||||||||
| Adjusted efficiency ratio(5) | 59.05 | % | 57.95 | % | 60.71 | % | |||||||||||||||||||||||||||||
| (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, $1.0 million, and $889,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $976,000, $963,000, and $389,000 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. |
| (4) | Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income. |
| (5) | Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables. |
| ADDITIONAL FINANCIAL INFORMATION | |||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| (rates / ratios annualized) | |||||||||||||||||||||||
| ANALYSIS OF NET INTEREST SPREAD | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2020 | September 30, 2019 | ||||||||||||||||||||||
| Average Balance | Interest and Dividends | Yield/Cost(3) | Average Balance | Interest and Dividends | Yield/Cost(3) | ||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||
| Held for sale loans | $ | 155,571 | $ | 4,506 | 3.87 | % | $ | 100,273 | $ | 3,295 | 4.39 | % | |||||||||||
| Mortgage loans | 7,321,206 | 268,244 | 4.89 | % | 6,835,861 | 269,588 | 5.27 | % | |||||||||||||||
| Commercial/agricultural loans | 2,450,234 | 74,555 | 4.06 | % | 1,761,222 | 72,086 | 5.47 | % | |||||||||||||||
| Consumer and other loans | 151,968 | 7,151 | 6.29 | % | 178,792 | 8,545 | 6.39 | % | |||||||||||||||
| Total loans(1)(3) | 10,078,979 | 354,456 | 4.70 | % | 8,876,148 | 353,514 | 5.32 | % | |||||||||||||||
| Mortgage-backed securities | 1,297,020 | 24,652 | 2.54 | % | 1,368,081 | 29,785 | 2.91 | % | |||||||||||||||
| Other securities | 710,967 | 15,205 | 2.86 | % | 449,030 | 10,894 | 3.24 | % | |||||||||||||||
| Equity securities | 165,395 | 309 | 0.25 | % | — | — | — | % | |||||||||||||||
| Interest-bearing deposits with banks | 159,065 | 688 | 0.58 | % | 60,655 | 1,118 | 2.46 | % | |||||||||||||||
| FHLB stock | 19,822 | 785 | 5.29 | % | 30,679 | 1,031 | 4.49 | % | |||||||||||||||
| Total investment securities(3) | 2,352,269 | 41,639 | 2.36 | % | 1,908,445 | 42,828 | 3.00 | % | |||||||||||||||
| Total interest-earning assets | 12,431,248 | 396,095 | 4.26 | % | 10,784,593 | 396,342 | 4.91 | % | |||||||||||||||
| Non-interest-earning assets | 1,232,997 | 1,053,180 | |||||||||||||||||||||
| Total assets | $ | 13,664,245 | $ | 11,837,773 | |||||||||||||||||||
| Deposits: | |||||||||||||||||||||||
| Interest-bearing checking accounts | $ | 1,352,369 | 1,164 | 0.11 | % | $ | 1,175,521 | 1,660 | 0.19 | % | |||||||||||||
| Savings accounts | 2,133,780 | 3,566 | 0.22 | % | 1,853,671 | 6,283 | 0.45 | % | |||||||||||||||
| Money market accounts | 1,940,096 | 5,228 | 0.36 | % | 1,510,293 | 7,851 | 0.70 | % | |||||||||||||||
| Certificates of deposit | 1,069,145 | 10,665 | 1.33 | % | 1,171,363 | 11,886 | 1.36 | % | |||||||||||||||
| Total interest-bearing deposits | 6,495,390 | 20,623 | 0.42 | % | 5,710,848 | 27,680 | 0.65 | % | |||||||||||||||
| Non-interest-bearing deposits | 4,738,559 | — | — | % | 3,682,047 | — | — | % | |||||||||||||||
| Total deposits | 11,233,949 | 20,623 | 0.25 | % | 9,392,895 | 27,680 | 0.39 | % | |||||||||||||||
| Other interest-bearing liabilities: | |||||||||||||||||||||||
| FHLB advances | 236,949 | 4,036 | 2.28 | % | 508,247 | 9,953 | 2.62 | % | |||||||||||||||
| Other borrowings | 195,977 | 482 | 0.33 | % | 120,847 | 209 | 0.23 | % | |||||||||||||||
| Junior subordinated debentures and subordinated notes | 181,886 | 4,988 | 3.66 | % | 140,212 | 5,008 | 4.78 | % | |||||||||||||||
| Total borrowings | 614,812 | 9,506 | 2.07 | % | 769,306 | 15,170 | 2.64 | % | |||||||||||||||
| Total funding liabilities | 11,848,761 | 30,129 | 0.34 | % | 10,162,201 | 42,850 | 0.56 | % | |||||||||||||||
| Other non-interest-bearing liabilities(2) | 197,912 | 155,771 | |||||||||||||||||||||
| Total liabilities | 12,046,673 | 10,317,972 | |||||||||||||||||||||
| Shareholders’ equity | 1,617,572 | 1,519,801 | |||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 13,664,245 | $ | 11,837,773 | |||||||||||||||||||
| Net interest income/rate spread (tax equivalent) | $ | 365,966 | 3.92 | % | $ | 353,492 | 4.35 | % | |||||||||||||||
| Net interest margin (tax equivalent) | 3.93 | % | 4.38 | % | |||||||||||||||||||
| Reconciliation to reported net interest income: | |||||||||||||||||||||||
| Adjustments for taxable equivalent basis | (6,102 | ) | (4,072 | ) | |||||||||||||||||||
| Net interest income and margin, as reported | $ | 359,864 | 3.87 | % | $ | 349,420 | 4.33 | % | |||||||||||||||
| Additional Key Financial Ratios: | |||||||||||||||||||||||
| Return on average assets | 0.75 | % | 1.27 | % | |||||||||||||||||||
| Return on average equity | 6.36 | % | 9.91 | % | |||||||||||||||||||
| Average equity/average assets | 11.84 | % | 12.84 | % | |||||||||||||||||||
| Average interest-earning assets/average interest-bearing liabilities | ` | 174.84 | % | 166.42 | % | ||||||||||||||||||
| Average interest-earning assets/average funding liabilities | 104.92 | % | 106.12 | % | |||||||||||||||||||
| Non-interest income/average assets | 0.73 | % | 0.70 | % | |||||||||||||||||||
| Non-interest expense/average assets | 2.70 | % | 2.98 | % | |||||||||||||||||||
| Efficiency ratio(4) | 63.54 | % | 64.23 | % | |||||||||||||||||||
| Adjusted efficiency ratio(5) | 60.13 | % | 61.17 | % | |||||||||||||||||||
| (1) | Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans. |
| (2) | Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures. |
| (3) | Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.6 million and $3.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.5 million and $1.1 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. |
| (4) | Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income. |
| (5) | Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables. |
| ADDITIONAL FINANCIAL INFORMATION | |||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||
| * Non-GAAP Financial Measures | |||||||||||||||||||
| In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below: | |||||||||||||||||||
| ADJUSTED REVENUE | Quarters Ended | Nine Months Ended | |||||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | Sep 30, 2020 | Sep 30, 2019 | |||||||||||||||
| Net interest income before provision for credit losses | $ | 121,026 | $ | 119,580 | $ | 116,621 | $ | 359,864 | $ | 349,420 | |||||||||
| Total non-interest income | 28,222 | 27,720 | 20,866 | 75,107 | 61,667 | ||||||||||||||
| Total GAAP revenue | 149,248 | 147,300 | 137,487 | 434,971 | 411,087 | ||||||||||||||
| Exclude net (gain) loss on sale of securities | (644 | ) | (93 | ) | 2 | (815 | ) | 29 | |||||||||||
| Exclude net change in valuation of financial instruments carried at fair value | (37 | ) | (2,199 | ) | 69 | 2,360 | 172 | ||||||||||||
| Adjusted revenue (non-GAAP) | $ | 148,567 | $ | 145,008 | $ | 137,558 | $ | 436,516 | $ | 411,288 | |||||||||
| ADJUSTED EARNINGS | Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | Sep 30, 2020 | Sep 30, 2019 | ||||||||||||||||
| Net income (GAAP) | $ | 36,548 | $ | 23,541 | $ | 39,577 | $ | 76,971 | $ | 112,623 | ||||||||||
| Exclude net (gain) loss on sale of securities | (644) | (93) | 2 | (815) | 29 | |||||||||||||||
| Exclude net change in valuation of financial instruments carried at fair value | (37) | (2,199) | 69 | 2,360 | 172 | |||||||||||||||
| Exclude acquisition-related expenses | 5 | 336 | 676 | 1,483 | 3,125 | |||||||||||||||
| Exclude COVID-19 expenses | 778 | 2,152 | — | 3,169 | — | |||||||||||||||
| Exclude related net tax benefit | (24) | (47) | (49) | (1,476) | (668) | |||||||||||||||
| Total adjusted earnings (non-GAAP) | $ | 36,626 | $ | 23,690 | $ | 40,275 | $ | 81,692 | $ | 115,281 | ||||||||||
| Diluted earnings per share (GAAP) | $ | 1.03 | $ | 0.67 | $ | 1.15 | $ | 2.17 | $ | 3.23 | ||||||||||
| Diluted adjusted earnings per share (non-GAAP) | $ | 1.04 | $ | 0.67 | $ | 1.17 | $ | 2.30 | $ | 3.31 | ||||||||||
| ADDITIONAL FINANCIAL INFORMATION | ||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
| ADJUSTED EFFICIENCY RATIO | Quarters Ended | Nine Months Ended | ||||||||||||||||||
| Sep 30, 2020 | June 30, 2020 | Sep 30, 2019 | Sep 30, 2020 | Sep 30, 2019 | ||||||||||||||||
| Non-interest expense (GAAP) | $ | 91,567 | $ | 89,637 | $ | 87,308 | $ | 276,389 | $ | 264,038 | ||||||||||
| Exclude acquisition-related expenses | (5) | (336) | (676) | (1,483) | (3,125) | |||||||||||||||
| Exclude COVID-19 expenses | (778) | (2,152) | — | (3,169) | — | |||||||||||||||
| Exclude CDI amortization | (1,864) | (2,002) | (1,985) | (5,867) | (6,090) | |||||||||||||||
| Exclude state/municipal tax expense | (1,196) | (1,104) | (1,011) | (3,284) | (2,963) | |||||||||||||||
| Exclude REO operations | 11 | (4) | (126) | (93) | (263) | |||||||||||||||
| Adjusted non-interest expense (non-GAAP) | $ | 87,735 | $ | 84,039 | $ | 83,510 | $ | 262,493 | $ | 251,597 | ||||||||||
| Net interest income before provision for credit losses (GAAP) | $ | 121,026 | $ | 119,580 | $ | 116,621 | $ | 359,864 | $ | 349,420 | ||||||||||
| Non-interest income (GAAP) | 28,222 | 27,720 | 20,866 | 75,107 | 61,667 | |||||||||||||||
| Total revenue | 149,248 | 147,300 | 137,487 | 434,971 | 411,087 | |||||||||||||||
| Exclude net (gain) loss on sale of securities | (644) | (93) | 2 | (815) | 29 | |||||||||||||||
| Exclude net change in valuation of financial instruments carried at fair value | (37) | (2,199) | 69 | 2,360 | 172 | |||||||||||||||
| Adjusted revenue (non-GAAP) | $ | 148,567 | $ | 145,008 | $ | 137,558 | $ | 436,516 | $ | 411,288 | ||||||||||
| Efficiency ratio (GAAP) | 61.35 | % | 60.85 | % | 63.50 | % | 63.54 | % | 64.23 | % | ||||||||||
| Adjusted efficiency ratio (non-GAAP) | 59.05 | % | 57.95 | % | 60.71 | % | 60.13 | % | 61.17 | % | ||||||||||
| TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS | Sep 30, 2020 | June 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | ||||||||||||
| Shareholders’ equity (GAAP) | $ | 1,646,529 | $ | 1,625,103 | $ | 1,594,034 | $ | 1,530,935 | ||||||||
| Exclude goodwill and other intangible assets, net | 396,412 | 398,276 | 402,279 | 365,764 | ||||||||||||
| Tangible common shareholders’ equity (non-GAAP) | $ | 1,250,117 | $ | 1,226,827 | $ | 1,191,755 | $ | 1,165,171 | ||||||||
| Total assets (GAAP) | $ | 14,642,075 | $ | 14,405,607 | $ | 12,604,031 | $ | 12,097,842 | ||||||||
| Exclude goodwill and other intangible assets, net | 396,412 | 398,276 | 402,279 | 365,764 | ||||||||||||
| Total tangible assets (non-GAAP) | $ | 14,245,663 | $ | 14,007,331 | $ | 12,201,752 | $ | 11,732,078 | ||||||||
| Common shareholders’ equity to total assets (GAAP) | 11.25 | % | 11.28 | % | 12.65 | % | 12.65 | % | ||||||||
| Tangible common shareholders’ equity to tangible assets (non-GAAP) | 8.78 | % | 8.76 | % | 9.77 | % | 9.93 | % | ||||||||
| TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE | ||||||||||||||||
| Tangible common shareholders’ equity (non-GAAP) | $ | 1,250,117 | $ | 1,226,827 | $ | 1,191,755 | $ | 1,165,171 | ||||||||
| Common shares outstanding at end of period | 35,158,568 | 35,157,899 | 35,751,576 | 34,173,357 | ||||||||||||
| Common shareholders’ equity (book value) per share (GAAP) | $ | 46.83 | $ | 46.22 | $ | 44.59 | $ | 44.80 | ||||||||
| Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) | $ | 35.56 | $ | 34.89 | $ | 33.33 | $ | 34.10 | ||||||||
| CONTACT: | MARK J. GRESCOVICH, |
| PRESIDENT & CEO | |
| PETER J. CONNER, CFO | |
| (509) 527-3636 |