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Banner Corporation Reports Net Income of $45.9 Million, or $1.33 Per Diluted Share, for Third Quarter 2023; Declares Quarterly Cash Dividend of $0.48 Per Share
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Banner Corporation Reports Net Income of $45.9 Million, or $1.33 Per Diluted Share, for Third Quarter 2023; Declares Quarterly Cash Dividend of $0.48 Per Share

WALLA WALLA, Wash., Oct. 18, 2023 (GLOBE NEWSWIRE) — Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $45.9 million, or $1.33 per diluted share, for the third quarter of 2023, a 16% increase compared to $39.6 million, or $1.15 per diluted share, for the preceding quarter and a 7% decrease compared to $49.1 million, or $1.43 per diluted share, for the third quarter of 2022.  Net interest income was $141.8 million in the third quarter of 2023, compared to $142.5 million in the preceding quarter and $146.4 million in the third quarter a year ago.  The decrease in net interest income compared to the preceding and prior year quarters reflects an increase in funding costs, partially offset by an increase in yields on earning assets.  Banner’s third quarter 2023 results include a $2.0 million provision for credit losses, compared to a $6.8 million provision for credit losses in the preceding quarter and a $6.1 million provision for credit losses in the third quarter of 2022.  Net income was $141.0 million, or $4.09 per diluted share, for both the nine months ended September 30, 2023 and 2022.  Banner’s results for the first nine months of 2023 include an $8.3 million provision for credit losses, compared to a $3.7 million provision for credit losses the same period in 2022.

Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.48 per share.  The dividend will be payable November 13, 2023, to common shareholders of record on November 3, 2023.

“Our super community bank business model, which emphasizes a moderate risk profile and strong relationship banking, continues to serve us well and we are well positioned to manage the uncertainties of these economic times,” said Mark Grescovich, President and CEO.  “Our performance for the third quarter of 2023 benefited from loan growth and higher yields on interest-earning assets.  However, the higher interest rate environment and its effect on funding costs resulted in moderate compression in our net interest margin during the quarter.  Due to solid loan growth, we continue to build reserves while maintaining very strong credit quality metrics.  Our continued focus on growing client relationships is serving us well, with core deposits representing 89% of total deposits at quarter end.  Banner’s overarching goals continue to be to do the right thing for our clients, communities, colleagues, company and shareholders; and to provide a consistent and reliable source of commerce and capital through all economic cycles and change events,” concluded Grescovich.

At September 30, 2023, Banner, on a consolidated basis, had $15.51 billion in assets, $10.46 billion in net loans and $13.17 billion in deposits.  Banner operates 135 full service branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2023 Highlights

  • Revenues increased 2% to $154.4 million, compared to $150.9 million in the preceding quarter, and decreased 5% compared to $162.0 million in the third quarter a year ago.
  • Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $157.7 million in the third quarter of 2023, compared to $158.6 million in the preceding quarter and $161.5 million in the third quarter a year ago.
  • Net interest income decreased 1% to $141.8 million in the third quarter of 2023, compared to $142.5 million in the preceding quarter and decreased 3% compared to $146.4 million in the third quarter a year ago.
  • Net interest margin, on a tax equivalent basis, was 3.93%, compared to 4.00% in the preceding quarter and 3.85% in the third quarter a year ago.
  • Mortgage banking operations revenue increased to $2.0 million, compared to $1.7 million in the preceding quarter, and compared to $105,000 in the third quarter a year ago.
  • Return on average assets was 1.17%, compared to 1.02% in the preceding quarter and 1.18% in the third quarter a year ago.
  • Net loans receivable increased 1% to $10.46 billion at September 30, 2023, compared to $10.33 billion at June 30, 2023, and increased 8% compared to $9.69 billion at September 30, 2022.
  • Non-performing assets decreased to $26.8 million, or 0.17% of total assets, at September 30, 2023, compared to $28.7 million, or 0.18% of total assets at June 30, 2023, and increased compared to $15.6 million, or 0.10% of total assets, at September 30, 2022.
  • The allowance for credit losses – loans was $147.0 million, or 1.38% of total loans receivable, as of September 30, 2023, compared to $144.7 million, or 1.38% of total loans receivable as of June 30, 2023 and $135.9 million, or 1.38% of total loans receivable as of September 30, 2022.
  • Total deposits increased to $13.17 billion at September 30, 2023, compared to $13.10 billion at June 30, 2023, and decreased compared to $14.23 billion at September 30, 2022.
  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased to $11.72 billion at September 30, 2023, compared to $11.74 billion at June 30, 2023 and $13.51 billion at September 30, 2022.  Core deposits represented 89% of total deposits at September 30, 2023.
  • Banner Bank’s estimated uninsured deposits were approximately 31% of total deposits at both September 30, 2023 and June 30, 2023.
  • Banner Bank’s estimated uninsured deposits, excluding collateralized public deposits and affiliate deposits, were approximately 28% of total deposits at both September 30, 2023 and June 30, 2023.
  • Available borrowing capacity was $4.62 billion at September 30, 2023, compared to $4.02 billion at June 30, 2023.
  • On-balance sheet liquidity was $2.86 billion at September 30, 2023, compared to $3.07 billion at June 30, 2023.
  • Dividends paid to shareholders were $0.48 per share in the quarter ended September 30, 2023.
  • Common shareholders’ equity per share decreased 1% to $44.27 at September 30, 2023, compared to $44.91 at the preceding quarter end, and increased 7% from $41.20 at September 30, 2022.
  • Tangible common shareholders’ equity per share* decreased 2% to $33.22 at September 30, 2023, compared to $33.83 at the preceding quarter end, and increased 11% from $29.97 at September 30, 2022.

*Non-GAAP (Generally Accepted Accounting Principles) measure; See, “Additional Financial Information – Non-GAAP Financial Measures” on the final two pages of this press release for a discussion and reconciliation of non-GAAP financial measures.

Income Statement Review

Net interest income was $141.8 million in the third quarter of 2023, compared to $142.5 million in the preceding quarter and $146.4 million in the third quarter a year ago.  Net interest margin on a tax equivalent basis was 3.93% for the third quarter of 2023, a seven basis-point decrease compared to 4.00% in the preceding quarter and an eight basis-point increase compared to 3.85% in the third quarter a year ago.  Net interest margin for the current quarter was impacted by an increase in funding costs due to an increase in the mix of higher cost retail CDs and the lag effect of prior market rate increases on current period deposit costs, partially offset by a decrease in FHLB advances and increased yields on loans due to the rising interest rates during the quarter.

Average yields on interest-earning assets increased 14 basis points to 4.94% for the third quarter of 2023, compared to 4.80% for the preceding quarter and increased 97 basis points compared to 3.97% in the third quarter a year ago.  Since March 2022, in response to inflation, the Federal Open Market Committee of the Federal Reserve System has increased the target range for the federal funds rate by 525 basis points, including 25 basis points during the third quarter of 2023, to a range of 5.25% to 5.50%.  The increase in average yields on interest-earning assets during the current quarter reflects the benefit of variable rate interest-earning assets repricing higher, as well as new loans being originated at higher interest rates.  Average loan yields increased 14 basis points to 5.65% compared to 5.51% in the preceding quarter and increased 83 basis points compared to 4.82% in the third quarter a year ago.  The increase in average loan yields during the current quarter compared to the preceding and prior year quarters was primarily the result of rising interest rates and the lag effect of some adjustable-rate loans repricing for the first time since the start of the rising rate environment.  Total deposit costs were 0.94% in the third quarter of 2023, which was a 30 basis-point increase compared to the preceding quarter and an 87 basis-point increase compared to the third quarter a year ago.  The increase in the costs of deposits was due to an increase in the mix of higher cost retail CDs as well as a larger percentage of core deposits being in interest bearing accounts.  The average rate paid on FHLB advances was 5.50% in the third quarter of 2023, which was a 21 basis-point increase compared to 5.29% in the preceding quarter.  There were no FHLB advances during the third quarter a year ago.  The average rate paid on other borrowings in the third quarter of 2023 was 2.24%, which was a 60 basis-point increase compared to 1.64% in the preceding quarter and a 211 basis-point increase compared to 0.13% in the third quarter a year ago.  The total cost of funding liabilities was 1.08% during the third quarter of 2023, a 22 basis-point increase compared to 0.86% in the preceding quarter and a 95 basis-point increase compared to 0.13% in the third quarter a year ago.

A $2.0 million provision for credit losses was recorded in the current quarter (comprised of a $2.9 million provision for credit losses – loans, a $346,000 provision for credit losses – unfunded loan commitments, a $1.3 million recapture of provision for credit losses – available for sale securities and a $12,000 recapture of provision for credit losses – held-to-maturity debt securities).  This compares to a $6.8 million provision for credit losses in the prior quarter (comprised of a $3.6 million provision for credit losses – loans, a $1.2 million provision for credit losses – unfunded loan commitments, a $2.0 million provision for credit losses – available for sale securities and a $16,000 recapture of provision for credit losses – held-to-maturity debt securities) and a $6.1 million provision for credit losses in the third quarter a year ago (comprised of a $6.3 million provision for credit losses – loans, a $205,000 recapture of provision for credit losses – unfunded loan commitments and a $55,000 recapture of provision for credit losses – held-to-maturity debt securities).  The provision for credit losses for the current quarter primarily reflects increased loan balances and unfunded loan commitments, partially offset by an increase in the trading price on bank subordinated debt investments.  The provision for credit losses for the preceding quarter primarily reflected increased loan balances and unfunded loan commitments, a deterioration in forecasted economic conditions and rating downgrades on bank subordinated debt investments.

Total non-interest income was $12.7 million in the third quarter of 2023, compared to $8.4 million in the preceding quarter and $15.6 million in the third quarter a year ago.  The increase in non-interest income during the current quarter compared to the preceding quarter was primarily due to a $1.9 million reduction in the net loss recognized on the sale of securities as well as a $2.5 million reduction in the net loss for fair value adjustments on financial instruments carried at fair value during the current quarter.  The decrease in non-interest income during the current quarter compared to the prior year quarter was primarily due to a $2.7 million net loss recognized on the sale of securities during the current quarter and a $654,000 net loss for fair value adjustments on financial instruments carried at fair value in the current quarter, partially offset by a $1.9 million increase in mortgage banking operations revenues.  Total non-interest income was $30.4 million for the nine months ended September 30, 2023, compared to $62.2 million for the same period a year earlier.

Mortgage banking operations revenue, including gains on one- to four-family and multifamily loan sales and loan servicing fees, was $2.0 million in the third quarter of 2023, compared to $1.7 million in the preceding quarter and $105,000 in the third quarter a year ago.  The increase from the preceding quarter and from the third quarter of 2022 primarily reflects a reduction in the lower of cost or market adjustment on multifamily held for sale loans recognized during the current period compared to the prior periods.  In addition, the volume of one- to four-family loans sold during the current quarter increased compared to the prior year quarter; however, volumes remain low primarily due to reduced refinancing activity, as well as decreased purchase activity as interest rates increased.  The increase in volume of one- to four-family loans sold during the current quarter compared to the prior year quarter was partially offset by a decrease in the gain on sale margin of one- to four-family loans sold.  Home purchase activity accounted for 90% of one- to four-family mortgage loan originations in the third quarter of 2023, compared to 93% in the preceding quarter and 88% in the third quarter of 2022.  For the third and second quarters of 2023, respectively, mortgage banking operations revenue included a $456,000 and $757,000 lower of cost or market downward adjustment on multifamily held for sale loans due to increases in market interest rates during those quarters.  There were no multifamily loans sold during the third and second quarters of 2023.  During the third quarter of 2022, a $2.2 million lower of cost or market downward adjustment was recorded due to increases in market rates.  There were $10.5 million of multifamily loans sold at a gain of $58,000 during the third quarter of 2022.

Third quarter 2023 non-interest income also included a $654,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and limited partnership investments, and a $2.7 million net loss on the sale of securities.  In the preceding quarter, results included a $3.2 million net loss for fair value adjustments and a $4.5 million net loss on the sale of securities.  In the third quarter a year ago, the results included a $532,000 net gain for fair value adjustments and a $6,000 net gain on the sale of securities.

Total revenue increased 2% to $154.4 million for the third quarter of 2023, compared to $150.9 million in the preceding quarter, and decreased 5% compared to $162.0 million in the third quarter of 2022.  Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $157.7 million in the third quarter of 2023, compared to $158.6 million in the preceding quarter and $161.5 million in the third quarter a year ago.  Total revenue was $468.0 million for the nine months ended September 30, 2023, compared to $456.3 million for the same period a year earlier.  In the first nine months of the year, adjusted revenue* was $486.7 million, compared to $447.4 million in the first nine months of 2022.

Total non-interest expense was $95.9 million in the third quarter of 2023, compared to $95.4 million in the preceding quarter and $95.0 million in the third quarter of 2022.  The increase in non-interest expense for the current quarter compared to the prior quarter primarily reflects a $503,000 increase in payment and card processing services expense, a $642,000 increase in professional and legal expenses and a $504,000 increase in miscellaneous expense, partially offset by an $881,000 decrease in salary and employee benefits expense.  The increase in non-interest expense for the current quarter compared to the same quarter a year ago primarily reflects a decrease in capitalized loan origination costs and an increase in deposit insurance expense, partially offset by decreases in salary and employee benefits expense and miscellaneous expense.  The current quarter included $996,000 of Banner forward expenses related to the consolidation of two branch locations, as well as expenses related to the discontinuation of the Multifamily Originated for Sale business line due to the continued lack of an active secondary market for originated loans.  Year-to-date, total non-interest expense was $285.9 million, compared to $278.3 million in the same period a year earlier.  Banner’s efficiency ratio was 62.10% for the third quarter, compared to 63.21% in the preceding quarter and 58.65% in the same quarter a year ago.  Banner’s adjusted efficiency ratio* was 59.00% for the third quarter, compared to 58.58% in the preceding quarter and 57.04% in the year ago quarter.

Federal and state income tax expense totaled $10.7 million for the third quarter of 2023 resulting in an effective tax rate of 18.9%, reflecting the benefits from tax exempt income.  Banner’s statutory income tax rate for the quarter ended September 30, 2023, was 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

*Non-GAAP financial measures.  See, “Additional Financial Information – Non-GAAP Financial Measures” on the final two pages of this press release for a discussion and reconciliation of non-GAAP financial measures.

Balance Sheet Review

Total assets decreased to $15.51 billion at September 30, 2023, compared to $15.58 billion at June 30, 2023, and decreased 5% from $16.36 billion at September 30, 2022.  The total of securities and interest-bearing deposits held at other banks totaled $3.44 billion at September 30, 2023, compared to $3.64 billion at June 30, 2023 and $5.01 billion at September 30, 2022.  The decrease compared to the prior quarter was primarily due to the sale of securities and a decrease in the fair value of securities – available for sale.  The decrease compared to the prior year quarter was primarily due to reverse repurchase agreements maturing during the first six months of 2023, the sale of securities and a reduction in interest bearing cash balances.  The average effective duration of the securities portfolio was approximately 6.8 years at September 30, 2023, compared to 6.4 years at September 30, 2022.

Total loans receivable increased to $10.61 billion at September 30, 2023, compared to $10.47 billion at June 30, 2023, and $9.83 billion at September 30, 2022.  One- to four-family residential loans increased 7% to $1.44 billion at September 30, 2023, compared to $1.34 billion at June 30, 2023, and increased 40% compared to $1.03 billion at September 30, 2022.  The increase in one- to four-family residential loans was primarily the result of one- to four-family construction loans converting to one- to four-family portfolio loans upon the completion of the construction phase and new production.  Multifamily real estate loans increased 10% to $766.6 million at September 30, 2023, compared to $699.8 million at June 30, 2023, and increased 29% compared to $592.8 million at September 30, 2022.  The increase in multifamily loans compared to the prior quarter was primarily the result of multifamily affordable housing construction loans converting to multifamily portfolio loans upon the completion of the construction phase.  The increase in multifamily loans compared to a year ago also reflects the transfer of $54.0 million of multifamily held for sale loans to the held for investment loan portfolio during the fourth quarter of 2022.  Commercial business loans decreased to $2.26 billion at September 30, 2023, compared to $2.30 billion at June 30, 2023, primarily due to paydowns and payoffs exceeding new loan production, and increased 5% compared to $2.15 billion a year ago, primarily due to new loan production.  Agricultural business loans increased 8% to $334.6 million at September 30, 2023, compared to $310.1 million at June 30, 2023, and increased 12% compared to $299.4 million at September 30, 2022, primarily due to new loan production and advances on agricultural lines of credit.

Loans held for sale were $54.2 million at September 30, 2023, compared to $60.6 million at June 30, 2023, and $84.4 million at September 30, 2022.  One- to four- family residential mortgage loans sold totaled $87.3 million in the current quarter, compared to $62.6 million in the preceding quarter and $49.7 million in the third quarter a year ago.  There were no multifamily loans sold during the third quarter of 2023 or the preceding quarter and $10.5 million sold in the third quarter a year ago.

Total deposits increased to $13.17 billion at September 30, 2023, compared to $13.10 billion at June 30, 2023, primarily due to increases in interest-bearing deposit accounts and normal seasonal increases following outflows for tax payments during the second quarter of 2023, and decreased compared to $14.23 billion a year ago.  The decline in deposits from the third quarter a year ago was primarily due to interest rate sensitive clients shifting a portion of their non-operating deposit balances to higher yielding investments.  Non-interest-bearing account balances decreased 3% to $5.20 billion at September 30, 2023, compared to $5.37 billion at June 30, 2023, and 20% compared to $6.51 billion at September 30, 2022.  Core deposits were 89% of total deposits at September 30, 2023, 90% of total deposits at June 30, 2023 and 95% of total deposits at September 30, 2022.  Certificates of deposit increased 7% to $1.46 billion at September 30, 2023, compared to $1.36 billion at June 30, 2023, and increased 102% compared to $721.9 million a year earlier.  The increase in certificates of deposit during the current quarter compared to the preceding quarter and third quarter a year ago was principally due to clients seeking higher yields moving funds from core deposit accounts to higher yielding certificates of deposit.  The increase in certificates of deposit from the third quarter a year ago was also due to a $162.9 million increase in brokered deposits.

Banner Bank’s estimated uninsured deposits were $4.07 billion or 31% of total deposits at September 30, 2023, compared to $4.06 billion or 31% of total deposits at June 30, 2023.  The uninsured deposit calculation includes $300.2 million and $309.7 million of collateralized public deposits at September 30, 2023 and June 30, 2023, respectively.  Uninsured deposits also include cash held by the holding company of $97.8 million and $95.0 million at September 30, 2023 and June 30, 2023, respectively.  Banner Bank’s estimated uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 28% of deposits at both September 30, 2023 and June 30, 2023.

Banner had $140.0 million of FHLB borrowings at September 30, 2023, compared to $270.0 million at June 30, 2023 and none a year ago.  At September 30, 2023, Banner’s off-balance sheet liquidity included additional borrowing capacity of $2.98 billion at the FHLB and $1.52 billion at the Federal Reserve as well as federal funds line of credit agreements with other financial institutions of $125.0 million.

Subordinated notes, net of issuance costs, were $92.7 million at September 30, 2023 compared to $92.6 million at June 30, 2023 and $98.8 million at September 30, 2022.  The decrease in subordinated notes was due to Banner Bank’s purchase of $6.5 million of Banner’s subordinated debt during the second quarter of 2023.

At September 30, 2023, total common shareholders’ equity was $1.52 billion, or 9.81% of assets, compared to $1.54 billion or 9.90% of assets at June 30, 2023, and $1.41 billion or 8.61% of assets at September 30, 2022.  The decrease in total common shareholders’ equity at September 30, 2023 compared to June 30, 2023 was primarily due to a $53.5 million increase in accumulated other comprehensive loss, primarily due to a decrease in the fair value of the security portfolio as a result of an increase in interest rates during the third quarter of 2023, partially offset by a $29.2 million increase in retained earnings as a result of $45.9 million in net income, offset by the accrual of $16.7 million of cash dividends during the third quarter of 2023.  The increase in total common shareholders’ equity from September 30, 2022 reflects a $130.1 million increase in retained earnings, partially offset by an $23.7 million increase in accumulated other comprehensive loss, primarily due to a decrease in the fair value of the security portfolio as a result of an increase in interest rates during 2022.  At September 30, 2023, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.14 billion, or 7.54% of tangible assets*, compared to $1.16 billion, or 7.64% of tangible assets, at June 30, 2023, and $1.02 billion, or 6.41% of tangible assets, a year ago.

*Non-GAAP financial measures.  See, “Additional Financial Information – Non-GAAP Financial Measures” on the final two pages of this press release for a discussion and reconciliation of non-GAAP financial measures.

Banner and Banner Bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.”  At September 30, 2023, Banner’s estimated common equity Tier 1 capital ratio was 11.75%, its estimated Tier 1 leverage capital to average assets ratio was 10.40%, and its estimated total capital to risk-weighted assets ratio was 14.34%. These regulatory capital ratios are estimates, pending completion and filing of Banner’s regulatory reports.

Credit Quality

The allowance for credit losses – loans was $147.0 million, or 1.38% of total loans receivable and 560% of non-performing loans, at September 30, 2023, compared to $144.7 million, or 1.38% of total loans receivable and 513% of non-performing loans, at June 30, 2023, and $135.9 million, or 1.38% of total loans receivable and 895% of non-performing loans, at September 30, 2022.  In addition to the allowance for credit losses – loans, Banner maintains an allowance for credit losses – unfunded loan commitments, which was $15.0 million at September 30, 2023, compared to $14.7 million at June 30, 2023, and $14.0 million at September 30, 2022.  Net loan charge-offs totaled $663,000 in the third quarter of 2023, compared to net loan charge-offs of $336,000 in the preceding quarter and net loan recoveries of $869,000 in the third quarter a year ago.  Non-performing loans were $26.3 million at September 30, 2023, compared to $28.2 million at June 30, 2023, and $15.2 million a year ago.

Substandard loans were $124.5 million at September 30, 2023, compared to $145.0 million at June 30, 2023, and $136.4 million a year ago.  The decreases from the prior quarter and the comparable quarter a year ago primarily reflect risk rating upgrades as well as the payoff and sale of substandard loans.

Total non-performing assets were $26.8 million, or 0.17% of total assets, at September 30, 2023, compared to $28.7 million, or 0.18% of total assets, at June 30, 2023, and $15.6 million, or 0.10% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday October 19, 2023, at 8:00 a.m. PDT, to discuss its third quarter results.  Interested investors may listen to the call live at www.bannerbank.com.  Investment professionals are invited to dial (833) 470-1428 using access code 535380 to participate in the call.  A replay will be available for one week at (866) 813-9403 using access code 970585 or at www.bannerbank.com.

About the Company

Banner Corporation is a $15.51 billion bank holding company operating a 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 employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth, or increased political instability due to acts of war; (2) changes in the interest rate environment, including the recent increases in the Federal Reserve benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; (3) the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; (4) the effects of any federal government shutdown; (5) the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; (6) 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; (7) 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; (8) competitive pressures among depository institutions; (9) the effect of inflation on interest rate movements and their impact on client behavior and net interest margin; (10) the transition away from the London Interbank Offered Rate (LIBOR) toward new interest rate benchmarks; (11) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (12) fluctuations in real estate values; (13) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (14) the ability to access cost-effective funding; (15) 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; (16) changes in financial markets; (17) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (18) the costs, effects and outcomes of litigation; (19) 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; (20) changes in accounting principles, policies or guidelines; (21) future acquisitions by Banner of other depository institutions or lines of business; (22) future goodwill impairment due to changes in Banner’s business or changes in market conditions; (23) the costs associated with Banner Forward; (24) effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; (25) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and (26) other risks detailed from time to time in Banner’s other reports filed with and furnished to 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   Nine Months Ended
(in thousands except shares and per share data)   Sep 30, 2023   Jun 30, 2023   Sep 30, 2022   Sep 30, 2023   Sep 30, 2022
INTEREST INCOME:                    
Loans receivable   $ 149,254     $ 140,848     $ 116,610     $ 423,359     $ 321,466  
Mortgage-backed securities     17,691       18,285       17,558       54,954       48,486  
Securities and cash equivalents     12,119       12,676       16,951       39,521       37,059  
Total interest income     179,064       171,809       151,119       517,834       407,011  
INTEREST EXPENSE:                    
Deposits     31,001       20,539       2,407       60,784       6,501  
Federal Home Loan Bank (FHLB) advances     2,233       5,157             8,654       291  
Other borrowings     1,099       771       81       2,251       245  
Subordinated debt     2,965       2,824       2,188       8,549       5,866  
Total interest expense     37,298       29,291       4,676       80,238       12,903  
Net interest income     141,766       142,518       146,443       437,596       394,108  
PROVISION FOR CREDIT LOSSES     2,027       6,764       6,087       8,267       3,660  
Net interest income after provision for credit losses     139,739       135,754       140,356       429,329       390,448  
NON-INTEREST INCOME:                    
Deposit fees and other service charges     10,916       10,600       11,449       32,078       33,638  
Mortgage banking operations     2,049       1,686       105       6,426       8,523  
Bank-owned life insurance     2,062       2,386       1,804       6,636       5,674  
Miscellaneous     942       1,428       1,689       4,010       5,423  
      15,969       16,100       15,047       49,150       53,258  
Net (loss) gain on sale of securities     (2,657 )     (4,527 )     6       (14,436 )     473  
Net change in valuation of financial instruments carried at fair value     (654 )     (3,151 )     532       (4,357 )     650  
Gain on sale of branches, including related deposits                             7,804  
Total non-interest income     12,658       8,422       15,585       30,357       62,185  
NON-INTEREST EXPENSE:                    
Salary and employee benefits     61,091       61,972       61,639       184,452       181,957  
Less capitalized loan origination costs     (4,498 )     (4,457 )     (5,984 )     (12,386 )     (19,436 )
Occupancy and equipment     11,722       11,994       12,008       35,686       38,512  
Information and computer data services     7,118       7,082       6,803       21,347       19,451  
Payment and card processing services     5,172       4,669       5,508       14,459       16,086  
Professional and legal expenses     3,042       2,400       2,619       7,563       7,677  
Advertising and marketing     1,362       940       1,326       3,108       2,609  
Deposit insurance     2,874       2,839       1,946       7,603       4,910  
State and municipal business and use taxes     1,359       1,229       1,223       3,888       3,389  
Real estate operations, net     (383 )     75       68       (585 )     (132 )
Amortization of core deposit intangibles     857       991       1,215       2,898       4,064  
Loss on extinguishment of debt                             793  
Miscellaneous     6,175       5,671       6,663       17,884       18,402  
Total non-interest expense     95,891       95,405       95,034       285,917       278,282  
Income before provision for income taxes     56,506       48,771       60,907       173,769       174,351  
PROVISION FOR INCOME TAXES     10,652       9,180       11,837       32,769       33,353  
NET INCOME   $ 45,854     $ 39,591     $ 49,070     $ 141,000     $ 140,998  
Earnings per common share:                    
Basic   $ 1.33     $ 1.15     $ 1.43     $ 4.11     $ 4.11  
Diluted   $ 1.33     $ 1.15     $ 1.43     $ 4.09     $ 4.09  
Cumulative dividends declared per common share   $ 0.48     $ 0.48     $ 0.44     $ 1.44     $ 1.32  
Weighted average number of common shares outstanding:                    
Basic     34,379,865       34,373,434       34,224,640       34,331,458       34,277,182  
Diluted     34,429,726       34,409,024       34,416,017       34,439,214       34,499,246  
Increase (decrease) in common shares outstanding     1,322       36,087       429       151,931       (60,873 )
                                         

FINANCIAL  CONDITION                   Percentage Change
(in thousands except shares and per share data)   Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022   Prior Qtr   Prior Yr Qtr
ASSETS                        
Cash and due from banks   $ 207,171     $ 229,918     $ 198,154     $ 273,052     (9.9 )%   (24.1 )%
Interest-bearing deposits     44,535       51,407       44,908       548,869     (13.4 )%   (91.9 )%
Total cash and cash equivalents     251,706       281,325       243,062       821,921     (10.5 )%   (69.4 )%
Securities – trading     25,268       25,659       28,694       28,383     (1.5 )%   (11.0 )%
Securities – available for sale, amortized cost $2,774,972, $2,879,179, $3,218,777 and $3,433,541, respectively     2,287,993       2,465,960       2,789,031       2,996,173     (7.2 )%   (23.6 )%
Securities – held to maturity, fair value $853,653, $933,116, $942,180 and $947,416, respectively     1,082,156       1,098,570       1,117,588       1,132,852     (1.5 )%   (4.5 )%
Total securities     3,395,417       3,590,189       3,935,313       4,157,408     (5.4 )%   (18.3 )%
FHLB stock     15,600       20,800       12,000       10,000     (25.0 )%   56.0 %
Securities purchased under agreements to resell                 300,000       300,000     nm     (100.0 )%
Loans held for sale     54,158       60,612       56,857       84,358     (10.6 )%   (35.8 )%
Loans receivable     10,611,417       10,472,407       10,146,724       9,827,096     1.3 %   8.0 %
Allowance for credit losses – loans     (146,960 )     (144,680 )     (141,465 )     (135,918 )   1.6 %   8.1 %
Net loans receivable     10,464,457       10,327,727       10,005,259       9,691,178     1.3 %   8.0 %
Accrued interest receivable     61,040       57,007       57,284       50,689     7.1 %   20.4 %
Property and equipment, net     136,504       135,414       138,754       141,280     0.8 %   (3.4 )%
Goodwill     373,121       373,121       373,121       373,121     %   %
Other intangibles, net     6,542       7,399       9,440       10,655     (11.6 )%   (38.6 )%
Bank-owned life insurance     303,347       301,260       297,565       295,443     0.7 %   2.7 %
Operating lease right-of-use assets     43,447       45,812       49,283       51,908     (5.2 )%   (16.3 )%
Other assets     402,541       384,070       355,493       372,848     4.8 %   8.0 %
Total assets   $ 15,507,880     $ 15,584,736     $ 15,833,431     $ 16,360,809     (0.5 )%   (5.2 )%
LIABILITIES                        
Deposits:                        
Non-interest-bearing   $ 5,197,854     $ 5,369,187     $ 6,176,998     $ 6,507,523     (3.2 )%   (20.1 )%
Interest-bearing transaction and savings accounts     6,518,385       6,373,269       6,719,531       7,004,799     2.3 %   (6.9 )%
Interest-bearing certificates     1,458,313       1,356,600       723,530       721,944     7.5 %   102.0 %
Total deposits     13,174,552       13,099,056       13,620,059       14,234,266     0.6 %   (7.4 )%
Advances from FHLB     140,000       270,000       50,000           (48.1 )%   nm  
Other borrowings     188,440       193,019       232,799       234,006     (2.4 )%   (19.5 )%
Subordinated notes, net     92,748       92,646       98,947       98,849     0.1 %   (6.2 )%
Junior subordinated debentures at fair value     66,284       67,237       74,857       73,841     (1.4 )%   (10.2 )%
Operating lease liabilities     48,642       51,234       55,205       58,031     (5.1 )%   (16.2 )%
Accrued expenses and other liabilities     231,478       223,565       200,839       209,226     3.5 %   10.6 %
Deferred compensation     45,129       45,466       44,293       43,931     (0.7 )%   2.7 %
Total liabilities     13,987,273       14,042,223       14,376,999       14,952,150     (0.4 )%   (6.5 )%
SHAREHOLDERS’ EQUITY                        
Common stock     1,297,307       1,294,934       1,293,959       1,291,741     0.2 %   0.4 %
Retained earnings     616,215       587,027       525,242       486,108     5.0 %   26.8 %
Accumulated other comprehensive loss     (392,915 )     (339,448 )     (362,769 )     (369,190 )   15.8 %   6.4 %
Total shareholders’ equity     1,520,607       1,542,513       1,456,432       1,408,659     (1.4 )%   7.9 %
Total liabilities and shareholders’ equity   $ 15,507,880     $ 15,584,736     $ 15,833,431     $ 16,360,809     (0.5 )%   (5.2 )%
Common Shares Issued:                        
Shares outstanding at end of period     34,345,949       34,344,627       34,194,018       34,191,759          
Common shareholders’ equity per share(1)   $ 44.27     $ 44.91     $ 42.59     $ 41.20          
Common shareholders’ tangible equity per share(1) (2)   $ 33.22     $ 33.83     $ 31.41     $ 29.97          
Common shareholders’ tangible equity to tangible assets(2)     7.54 %     7.64 %     6.95 %     6.41 %        
Consolidated Tier 1 leverage capital ratio     10.40 %     10.22 %     9.45 %     9.06 %        

(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 and tangible assets exclude goodwill and other intangible assets.  These ratios represent non-GAAP financial measures.  See, “Additional Financial Information – Non-GAAP Financial Measures” on the final two pages of this press release for a discussion and reconciliation of non-GAAP financial measures.

ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                    Percentage Change
LOANS   Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022   Prior Qtr   Prior Yr Qtr
                         
Commercial real estate (CRE):                        
Owner-occupied   $ 911,540     $ 894,876     $ 845,320     $ 862,792     1.9 %   5.7 %
Investment properties     1,530,087       1,558,176       1,589,975       1,604,881     (1.8 )%   (4.7 )%
Small balance CRE     1,169,828       1,172,825       1,200,251       1,188,351     (0.3 )%   (1.6 )%
Multifamily real estate     766,571       699,830       645,071       592,834     9.5 %   29.3 %
Construction, land and land development:                        
Commercial construction     168,061       183,765       184,876       171,029     (8.5 )%   (1.7 )%
Multifamily construction     453,129       433,868       325,816       275,488     4.4 %   64.5 %
One- to four-family construction     536,349       547,200       647,329       666,350     (2.0 )%   (19.5 )%
Land and land development     346,362       345,053       328,475       329,459     0.4 %   5.1 %
Commercial business:                        
Commercial business     1,263,747       1,313,226       1,283,407       1,242,550     (3.8 )%   1.7 %
Small business scored     1,000,714       982,283       947,092       906,647     1.9 %   10.4 %
Agricultural business, including secured by farmland:                        
Agricultural business, including secured by farmland     334,626       310,120       295,077       299,400     7.9 %   11.8 %
One- to four-family residential     1,438,694       1,340,126       1,173,112       1,025,143     7.4 %   40.3 %
Consumer:                        
Consumer—home equity revolving lines of credit     579,836       577,725       566,291       545,807     0.4 %   6.2 %
Consumer—other     111,873       113,334       114,632       116,365     (1.3 )%   (3.9 )%
Total loans receivable   $ 10,611,417     $ 10,472,407     $ 10,146,724     $ 9,827,096     1.3 %   8.0 %
Loans 30 – 89 days past due and on accrual   $ 6,108     $ 6,259     $ 17,186     $ 15,208          
Total delinquent loans (including loans on non-accrual), net   $ 28,312     $ 29,135     $ 32,371     $ 21,728          
Total delinquent loans  /  Total loans receivable     0.27 %     0.28 %     0.32 %     0.22 %        

LOANS BY GEOGRAPHIC LOCATION                       Percentage Change
    Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022   Prior Qtr   Prior Yr Qtr
    Amount   Percentage   Amount   Amount   Amount        
                             
Washington   $ 5,046,028   47.6 %   $ 4,945,074   $ 4,777,546   $ 4,648,124   2.0 %   8.6 %
California     2,570,175   24.2 %     2,537,121     2,484,980     2,323,740   1.3 %   10.6 %
Oregon     1,929,531   18.2 %     1,913,929     1,826,743     1,765,254   0.8 %   9.3 %
Idaho     600,648   5.7 %     595,065     565,586     588,498   0.9 %   2.1 %
Utah     57,711   0.5 %     62,720     75,967     95,250   (8.0 )%   (39.4 )%
Other     407,324   3.8 %     418,498     415,902     406,230   (2.7 )%   0.3 %
Total loans receivable   $ 10,611,417   100.0 %   $ 10,472,407   $ 10,146,724   $ 9,827,096   1.3 %   8.0 %
                                           

ADDITIONAL FINANCIAL INFORMATION  
(dollars in thousands)  
   
LOAN ORIGINATIONS Quarters Ended
  Sep 30, 2023   Jun 30, 2023   Sep 30, 2022
Commercial real estate $ 62,337   $ 94,640   $ 92,062
Multifamily real estate   12,725     3,441     4,603
Construction and land   421,656     488,980     444,365
Commercial business   157,833     128,404     218,044
Agricultural business   17,466     28,367     9,879
One-to four-family residential   43,622     52,618     92,701
Consumer   70,043     112,555     126,940
Total loan originations (excluding loans held for sale) $ 785,682   $ 909,005   $ 988,594

ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
    Quarters Ended
CHANGE IN THE   Sep 30, 2023   Jun 30, 2023   Sep 30, 2022
ALLOWANCE FOR CREDIT LOSSES – LOANS            
Balance, beginning of period   $ 144,680     $ 141,457     $ 128,702  
Provision for credit losses – loans     2,943       3,559       6,347  
Recoveries of loans previously charged off:            
Commercial real estate     170       74       88  
Construction and land     29              
One- to four-family real estate     59       36       25  
Commercial business     403       524       924  
Agricultural business, including secured by farmland     19       2       252  
Consumer     126       117       85  
      806       753       1,374  
Loans charged off:            
Construction and land           (156 )     (25 )
One- to four-family real estate           (4 )      
Commercial business     (616 )     (566 )     (138 )
Agricultural business, including secured by farmland     (564 )           (42 )
Consumer     (289 )     (363 )     (300 )
      (1,469 )     (1,089 )     (505 )
Net (charge-offs) recoveries     (663 )     (336 )     869  
Balance, end of period   $ 146,960     $ 144,680     $ 135,918  
Net (charge-offs) recoveries / Average loans receivable   (0.006              )%   (0.003              )%     0.009 %

             
ALLOCATION OF            
ALLOWANCE FOR CREDIT LOSSES – LOANS   Sep 30, 2023   Jun 30, 2023   Sep 30, 2022
Commercial real estate   $ 44,016     $ 43,636     $ 44,365  
Multifamily real estate     8,804       8,039       7,114  
Construction and land     29,389       29,844       27,985  
One- to four-family real estate     17,925       16,737       12,394  
Commercial business     34,065       33,880       31,854  
Agricultural business, including secured by farmland     3,718       3,573       3,455  
Consumer     9,043       8,971       8,751  
Total allowance for credit losses – loans   $ 146,960     $ 144,680     $ 135,918  
Allowance for credit losses – loans / Total loans receivable     1.38 %     1.38 %     1.38 %
Allowance for credit losses – loans / Non-performing loans     560 %     513 %     895 %

    Quarters Ended
CHANGE IN THE   Sep 30, 2023   Jun 30, 2023   Sep 30, 2022
ALLOWANCE FOR CREDIT LOSSES – UNFUNDED LOAN COMMITMENTS            
Balance, beginning of period   $ 14,664   $ 13,443   $ 14,246  
Provision (recapture) for credit losses – unfunded loan commitments     346     1,221     (205 )
Balance, end of period   $ 15,010   $ 14,664   $ 14,041  

ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
NON-PERFORMING ASSETS              
  Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022
Loans on non-accrual status:              
Secured by real estate:              
Commercial $ 1,365     $ 2,478     $ 3,683     $ 6,997  
Construction and land   5,538       2,280       181       299  
One- to four-family   5,480       7,605       5,236       2,381  
Commercial business   5,289       8,439       9,886       1,462  
Agricultural business, including secured by farmland   3,170       3,997       594       594  
Consumer   3,378       3,272       2,126       1,779  
    24,220       28,071       21,706       13,512  
Loans more than 90 days delinquent, still on accrual:              
Secured by real estate:              
One- to four-family   1,799       60       1,023       1,556  
Commercial business                     64  
Consumer   245       49       264       61  
    2,044       109       1,287       1,681  
Total non-performing loans   26,264       28,180       22,993       15,193  
REO   546       546       340       340  
Other repossessed assets               17       17  
Total non-performing assets $ 26,810     $ 28,726     $ 23,350     $ 15,550  
Total non-performing assets to total assets   0.17 %     0.18 %     0.15 %     0.10 %

LOANS BY CREDIT RISK RATING              
  Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022
Pass $ 10,467,498   $ 10,315,687   $ 10,000,493   $ 9,672,473
Special Mention   19,394     11,745     9,081     18,251
Substandard   124,525     144,975     137,150     136,372
Total $ 10,611,417   $ 10,472,407   $ 10,146,724   $ 9,827,096

ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                         
DEPOSIT COMPOSITION                   Percentage Change
    Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022   Prior Qtr   Prior Yr Qtr
Non-interest-bearing   $ 5,197,854   $ 5,369,187   $ 6,176,998   $ 6,507,523   (3.2 )%   (20.1 )%
Interest-bearing checking     2,006,866     1,908,402     1,811,153     1,856,244   5.2 %   8.1 %
Regular savings accounts     2,751,453     2,588,298     2,710,090     2,824,711   6.3 %   (2.6 )%
Money market accounts     1,760,066     1,876,569     2,198,288     2,323,844   (6.2 )%   (24.3 )%
Total interest-bearing transaction and savings accounts     6,518,385     6,373,269     6,719,531     7,004,799   2.3 %   (6.9 )%
Total core deposits     11,716,239     11,742,456     12,896,529     13,512,322   (0.2 )%   (13.3 )%
Interest-bearing certificates     1,458,313     1,356,600     723,530     721,944   7.5 %   102.0 %
Total deposits   $ 13,174,552   $ 13,099,056   $ 13,620,059   $ 14,234,266   0.6 %   (7.4 )%

GEOGRAPHIC CONCENTRATION OF DEPOSITS                  
    Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022   Percentage Change  
    Amount   Percentage   Amount   Amount   Amount   Prior Qtr   Prior Yr Qtr  
Washington   $ 7,241,341   55.0 %   $ 7,255,731   $ 7,563,056   $ 7,845,755   (0.2 )%   (7.7 )%
Oregon     2,918,446   22.1 %     2,914,267     2,998,572     3,148,520   0.1 %   (7.3 )%
California     2,342,345   17.8 %     2,257,247     2,331,524     2,493,977   3.8 %   (6.1 )%
Idaho     672,420   5.1 %     671,811     726,907     746,014   0.1 %   (9.9 )%
Total deposits   $ 13,174,552   100.0 %   $ 13,099,056   $ 13,620,059   $ 14,234,266   0.6 %   (7.4 )%

INCLUDED IN TOTAL DEPOSITS                
    Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022
Public non-interest-bearing accounts   $ 169,058   $ 191,591   $ 212,533   $ 192,742
Public interest-bearing transaction & savings accounts     188,831     189,140     180,326     172,567
Public interest-bearing certificates     46,349     45,840     26,810     33,787
Total public deposits   $ 404,238   $ 426,571   $ 419,669   $ 399,096
Collateralized public deposits   $ 300,189   $ 309,665   $ 304,244   $ 301,853
Total brokered deposits   $ 162,856   $ 203,649   $   $
                 
AVERAGE ACCOUNT BALANCE PER DEPOSIT ACCOUNT                
    Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022
Number of deposit accounts     466,159     467,490     471,140     477,082
Average account balance per account   $ 28   $ 28   $ 29   $ 30

ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
ESTIMATED REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2023   Actual   Minimum to be categorized as “Adequately Capitalized”   Minimum to be
categorized as
“Well Capitalized”
    Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
Total capital to risk-weighted assets   $ 1,873,419   14.34 %   $ 1,045,239   8.00 %   $ 1,306,548   10.00 %
Tier 1 capital to risk-weighted assets     1,621,146   12.41 %     783,929   6.00 %     783,929   6.00 %
Tier 1 leverage capital to average assets     1,621,146   10.40 %     623,306   4.00 %   n/a   n/a
Common equity tier 1 capital to risk-weighted assets     1,534,646   11.75 %     587,947   4.50 %   n/a   n/a
Banner Bank:                        
Total capital to risk-weighted assets     1,768,801   13.54 %     1,045,221   8.00 %     1,306,526   10.00 %
Tier 1 capital to risk-weighted assets     1,616,528   12.37 %     783,916   6.00 %     1,045,221   8.00 %
Tier 1 leverage capital to average assets     1,616,528   10.38 %     623,184   4.00 %     778,980   5.00 %
Common equity tier 1 capital to risk-weighted assets     1,616,528   12.37 %     587,937   4.50 %     849,242   6.50 %
                                     

These regulatory capital ratios are estimates, pending completion and filing of Banner’s regulatory reports.

ADDITIONAL FINANCIAL INFORMATION                 
(dollars in thousands)                                 
(rates / ratios annualized)                                 
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  Sep 30, 2023   Jun 30, 2023   Sep 30, 2022
  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 $ 56,697   $ 765     5.35 %   $ 56,073   $ 738     5.28 %   $ 68,608   $ 676     3.91 %
Mortgage loans   8,596,705     118,285     5.46 %     8,413,392     112,097     5.34 %     7,841,018     94,581     4.79 %
Commercial/agricultural loans   1,822,609     29,866     6.50 %     1,763,264     27,616     6.28 %     1,670,595     20,418     4.85 %
SBA PPP loans   4,298     28     2.58 %     5,247     67     5.12 %     21,943     613     11.08 %
Consumer and other loans   138,723     2,226     6.37 %     138,902     2,137     6.17 %     120,583     1,824     6.00 %
Total loans(1)   10,619,032     151,170     5.65 %     10,376,878     142,655     5.51 %     9,722,747     118,112     4.82 %
Mortgage-backed securities   2,863,345     17,834     2.47 %     2,958,700     18,429     2.50 %     3,183,837     17,704     2.21 %
Other securities   1,071,389     12,128     4.49 %     1,184,503     12,932     4.38 %     1,671,305     13,578     3.22 %
Interest-bearing deposits with banks   43,594     529     4.81 %     44,922     557     4.97 %     778,196     4,406     2.25 %
FHLB stock   16,443     385     9.29 %     25,611     157     2.46 %     10,000     75     2.98 %
Total investment securities   3,994,771     30,876     3.07 %     4,213,736     32,075     3.05 %     5,643,338     35,763     2.51 %
Total interest-earning assets   14,613,803     182,046     4.94 %     14,590,614     174,730     4.80 %     15,366,085     153,875     3.97 %
Non-interest-earning assets   932,364             939,100             1,100,313        
Total assets $ 15,546,167           $ 15,529,714           $ 16,466,398        
Deposits:                                  
Interest-bearing checking accounts $ 1,971,179     4,190     0.84 %   $ 1,870,605     2,331     0.50 %   $ 1,862,887     429     0.09 %
Savings accounts   2,659,890     8,400     1.25 %     2,536,713     4,895     0.77 %     2,822,153     481     0.07 %
Money market accounts   1,793,953     6,639     1.47 %     1,957,553     6,007     1.23 %     2,378,851     769     0.13 %
Certificates of deposit   1,412,542     11,772     3.31 %     1,126,647     7,306     2.60 %     740,014     728     0.39 %
Total interest-bearing deposits   7,837,564     31,001     1.57 %     7,491,518     20,539     1.10 %     7,803,905     2,407     0.12 %
Non-interest-bearing deposits   5,316,023         %     5,445,960         %     6,458,749         %
Total deposits   13,153,587     31,001     0.94 %     12,937,478     20,539     0.64 %     14,262,654     2,407     0.07 %
Other interest-bearing liabilities:                                  
FHLB advances   161,087     2,233     5.50 %     390,705     5,157     5.29 %             %
Other borrowings   194,659     1,099     2.24 %     188,060     771     1.64 %     242,658     81     0.13 %
Junior subordinated debentures and subordinated notes   182,678     2,965     6.44 %     185,096     2,824     6.12 %     189,178     2,188     4.59 %
Total borrowings   538,424     6,297     4.64 %     763,861     8,752     4.60 %     431,836     2,269     2.08 %
Total funding liabilities   13,692,011     37,298     1.08 %     13,701,339     29,291     0.86 %     14,694,490     4,676     0.13 %
Other non-interest-bearing liabilities(2)   296,578             279,232             257,058        
Total liabilities   13,988,589             13,980,571             14,951,548        
Shareholders’ equity   1,557,578             1,549,143             1,514,850        
Total liabilities and shareholders’ equity $ 15,546,167           $ 15,529,714           $ 16,466,398        
Net interest income/rate spread (tax equivalent)     $ 144,748     3.86 %       $ 145,439     3.94 %       $ 149,199     3.84 %
Net interest margin (tax equivalent)         3.93 %           4.00 %           3.85 %
Reconciliation to reported net interest income:                                  
Adjustments for taxable equivalent basis       (2,982 )             (2,921 )             (2,756 )    
Net interest income and margin, as reported     $ 141,766     3.85 %       $ 142,518     3.92 %       $ 146,443     3.78 %
Additional Key Financial Ratios:                                  
Return on average assets         1.17 %           1.02 %           1.18 %
Return on average equity         11.68 %           10.25 %           12.85 %
Average equity/average assets         10.02 %           9.98 %           9.20 %
Average interest-earning assets/average interest-bearing liabilities         174.47 %           176.74 %           186.58 %
Average interest-earning assets/average funding liabilities         106.73 %           106.49 %           104.57 %
Non-interest income/average assets         0.32 %           0.22 %           0.38 %
Non-interest expense/average assets         2.45 %           2.46 %           2.29 %
Efficiency ratio(4)         62.10 %           63.21 %           58.65 %
Adjusted efficiency ratio(5)         59.00 %           58.58 %           57.04 %

(1) Average balances include loans accounted for on a nonaccrual basis and accruing 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 $1.9 million, $1.8 million and $1.5 million for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1 million for both the quarters ended September 30, 2023 and June 30, 2023 and $1.3 million for the quarter September 30, 2022.
(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.  Represent non-GAAP financial measures.  See, “Additional Financial Information – Non-GAAP Financial Measures” on the final two pages of this press release for a discussion and reconciliation of non-GAAP financial measures.

ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
ANALYSIS OF NET INTEREST SPREAD Nine Months Ended
  Sep 30, 2023   Sep 30, 2022
  Average Balance   Interest and Dividends   Yield/Cost(3)   Average Balance   Interest and Dividends   Yield/Cost(3)
Interest-earning assets:                      
Held for sale loans $ 55,157   $ 2,174     5.27 %   $ 94,289   $ 2,446     3.47 %
Mortgage loans   8,427,034     337,282     5.35 %     7,581,540     261,021     4.60 %
Commercial/agricultural loans   1,763,248     82,658     6.27 %     1,574,957     52,582     4.46 %
SBA PPP loans   5,437     145     3.57 %     51,890     4,453     11.47 %
Consumer and other loans   138,246     6,478     6.26 %     117,892     5,207     5.91 %
Total loans(1)   10,389,122     428,737     5.52 %     9,420,568     325,709     4.62 %
Mortgage-backed securities   2,971,124     55,386     2.49 %     3,110,769     48,904     2.10 %
Other securities   1,220,074     40,155     4.40 %     1,624,138     32,333     2.66 %
Interest-bearing deposits with banks   47,330     1,694     4.79 %     1,214,076     7,507     0.83 %
FHLB stock   18,772     632     4.50 %     10,579     281     3.55 %
Total investment securities   4,257,300     97,867     3.07 %     5,959,562     89,025     2.00 %
Total interest-earning assets   14,646,422     526,604     4.81 %     15,380,130     414,734     3.61 %
Non-interest-earning assets   930,934             1,250,719        
Total assets $ 15,577,356           $ 16,630,849        
Deposits:                      
Interest-bearing checking accounts $ 1,874,518     7,427     0.53 %   $ 1,915,184     991     0.07 %
Savings accounts   2,604,089     15,179     0.78 %     2,826,757     1,187     0.06 %
Money market accounts   1,971,514     16,445     1.12 %     2,400,267     1,806     0.10 %
Certificates of deposit   1,118,874     21,733     2.60 %     782,548     2,517     0.43 %
Total interest-bearing deposits   7,568,995     60,784     1.07 %     7,924,756     6,501     0.11 %
Non-interest-bearing deposits   5,571,896         %     6,445,579         %
Total deposits   13,140,891     60,784     0.62 %     14,370,335     6,501     0.06 %
Other interest-bearing liabilities:                      
FHLB advances   219,461     8,654     5.27 %     13,919     291     2.80 %
Other borrowings   203,932     2,251     1.48 %     253,545     245     0.13 %
Junior subordinated debentures and subordinated notes   186,964     8,549     6.11 %     190,103     5,866     4.13 %
Total borrowings   610,357     19,454     4.26 %     457,567     6,402     1.87 %
Total funding liabilities   13,751,248     80,238     0.78 %     14,827,902     12,903     0.12 %
Other non-interest-bearing liabilities(2)   289,558             241,010        
Total liabilities   14,040,806             15,068,912        
Shareholders’ equity   1,536,550             1,561,937        
Total liabilities and shareholders’ equity $ 15,577,356           $ 16,630,849        
Net interest income/rate spread (tax equivalent)     $ 446,366     4.03 %       $ 401,831     3.49 %
Net interest margin (tax equivalent)         4.07 %           3.49 %
Reconciliation to reported net interest income:                      
Adjustments for taxable equivalent basis       (8,770 )             (7,723 )    
Net interest income and margin, as reported     $ 437,596     3.99 %       $ 394,108     3.43 %
Additional Key Financial Ratios:                      
Return on average assets         1.21 %           1.13 %
Return on average equity         12.27 %           12.07 %
Average equity/average assets         9.86 %           9.39 %
Average interest-earning assets/average interest-bearing liabilities         179.07 %           183.48 %
Average interest-earning assets/average funding liabilities         106.51 %           103.72 %
Non-interest income/average assets         0.26 %           0.50 %
Non-interest expense/average assets         2.45 %           2.24 %
Efficiency ratio(4)         61.10 %           60.99 %
Adjusted efficiency ratio(5)         57.19 %           59.39 %

(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 $5.4 million and $4.2 million for the years ended September 30, 2023 and September 30, 2022, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.4 million and $3.5 million for the years ended September 30, 2023 and September 30, 2022, 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, “Additional Financial Information – Non-GAAP Financial Measures” on the final two pages of this press release for a discussion and reconciliation of non-GAAP financial measures.

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.  Tangible common shareholders’ equity per share and the ratio of tangible common equity to tangible assets, and references to adjusted revenue, adjusted earnings and the adjusted efficiency ratio represent 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, 2023   Jun 30, 2023   Sep 30, 2022   Sep 30, 2023   Sep 30, 2022
Net interest income (GAAP) $ 141,766   $ 142,518   $ 146,443     $ 437,596   $ 394,108  
Non-interest income (GAAP)   12,658     8,422     15,585       30,357     62,185  
Total revenue (GAAP)   154,424     150,940     162,028       467,953     456,293  
Exclude: Net loss (gain) on sale of securities   2,657     4,527     (6 )     14,436     (473 )
Net change in valuation of financial instruments carried at fair value   654     3,151     (532 )     4,357     (650 )
Gain on sale of branches                     (7,804 )
Adjusted revenue (non-GAAP) $ 157,735   $ 158,618   $ 161,490     $ 486,746   $ 447,366  

ADJUSTED EARNINGS Quarters Ended   Nine Months Ended
  Sep 30, 2023   Jun 30, 2023   Sep 30, 2022   Sep 30, 2023   Sep 30, 2022
Net income (GAAP) $ 45,854     $ 39,591     $ 49,070     $ 141,000     $ 140,998  
Exclude: Net loss (gain) on sale of securities   2,657       4,527       (6 )     14,436       (473 )
Net change in valuation of financial instruments carried at fair value   654       3,151       (532 )     4,357       (650 )
Gain on sale of branches                           (7,804 )
Banner Forward expenses(1)   996       195       411       1,334       4,455  
Loss on extinguishment of debt                           793  
Related net tax (benefit) expense   (1,033 )     (1,890 )     31       (4,830 )     883  
Total adjusted earnings (non-GAAP) $ 49,128     $ 45,574     $ 48,974     $ 156,297     $ 138,202  
                   
Diluted earnings per share (GAAP) $ 1.33     $ 1.15     $ 1.43     $ 4.09     $ 4.09  
Diluted adjusted earnings per share (non-GAAP) $ 1.43     $ 1.32     $ 1.42     $ 4.54     $ 4.01  

(1)  Included in miscellaneous expenses in results of operations.

ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Nine Months Ended
    Sep 30, 2023   Jun 30, 2023   Sep 30, 2022   Sep 30, 2023   Sep 30, 2022
Non-interest expense (GAAP)   $ 95,891     $ 95,405     $ 95,034     $ 285,917     $ 278,282  
Exclude: Banner Forward expenses(1)     (996 )     (195 )     (411 )     (1,334 )     (4,455 )
CDI amortization     (857 )     (991 )     (1,215 )     (2,898 )     (4,064 )
State/municipal tax expense     (1,359 )     (1,229 )     (1,223 )     (3,888 )     (3,389 )
REO operations     383       (75 )     (68 )     585       132  
Loss on extinguishment of debt                             (793 )
Adjusted non-interest expense (non-GAAP)   $ 93,062     $ 92,915     $ 92,117     $ 278,382     $ 265,713  
                     
Net interest income (GAAP)   $ 141,766     $ 142,518     $ 146,443     $ 437,596     $ 394,108  
Non-interest income (GAAP)     12,658       8,422       15,585       30,357       62,185  
Total revenue (GAAP)     154,424       150,940       162,028       467,953       456,293  
Exclude: Net loss (gain) on sale of securities     2,657       4,527       (6 )     14,436       (473 )
Net change in valuation of financial instruments carried at fair value     654       3,151       (532 )     4,357       (650 )
Gain on sale of branches                             (7,804 )
Adjusted revenue (non-GAAP)   $ 157,735     $ 158,618     $ 161,490     $ 486,746     $ 447,366  
                     
Efficiency ratio (GAAP)     62.10 %     63.21 %     58.65 %     61.10 %     60.99 %
Adjusted efficiency ratio (non-GAAP)     59.00 %     58.58 %     57.04 %     57.19 %     59.39 %

(1)         Included in miscellaneous expenses in results of operations.

TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS                
    Sep 30, 2023   Jun 30, 2023   Dec 31, 2022   Sep 30, 2022
Shareholders’ equity (GAAP)   $ 1,520,607     $ 1,542,513     $ 1,456,432     $ 1,408,659  
Exclude goodwill and other intangible assets, net     379,663       380,520       382,561       383,776  
Tangible common shareholders’ equity (non-GAAP)   $ 1,140,944     $ 1,161,993     $ 1,073,871     $ 1,024,883  
                 
Total assets (GAAP)   $ 15,507,880     $ 15,584,736     $ 15,833,431     $ 16,360,809  
Exclude goodwill and other intangible assets, net     379,663       380,520       382,561       383,776  
Total tangible assets (non-GAAP)   $ 15,128,217     $ 15,204,216     $ 15,450,870     $ 15,977,033  
Common shareholders’ equity to total assets (GAAP)     9.81 %     9.90 %     9.20 %     8.61 %
Tangible common shareholders’ equity to tangible assets (non-GAAP)     7.54 %     7.64 %     6.95 %     6.41 %
                 
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE                
Tangible common shareholders’ equity (non-GAAP)   $ 1,140,944     $ 1,161,993     $ 1,073,871     $ 1,024,883  
Common shares outstanding at end of period     34,345,949       34,344,627       34,194,018       34,191,759  
Common shareholders’ equity (book value) per share (GAAP)   $ 44.27     $ 44.91     $ 42.59     $ 41.20  
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)   $ 33.22     $ 33.83     $ 31.41     $ 29.97  

CONTACT: MARK J. GRESCOVICH,
  PRESIDENT & CEO
  ROBERT G. BUTTERFIELD, CFO
  (509) 527-3636

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