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Banner Corporation Reports Net Income of $44.0 Million, or $1.27 Per Diluted Share, for First Quarter 2022; Declares Quarterly Cash Dividend of $0.44 Per Share
المصدر: Nasdaq GlobeNewswire / 20 أبريل 2022 16:00:01 America/New_York
WALLA WALLA, Wash., April 20, 2022 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $44.0 million, or $1.27 per diluted share, for the first quarter of 2022, a 12% decrease compared to $49.9 million, or $1.44 per diluted share, for the preceding quarter and a 6% decrease compared to $46.9 million, or $1.33 per diluted share, for the first quarter of 2021. Banner’s first quarter 2022 results include $7.0 million in recapture of provision for credit losses, compared to $5.2 million in recapture of provision for credit losses in the preceding quarter and $9.3 million in recapture of provision for credit losses in the first quarter of 2021.
Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.44 per share. The dividend will be payable May 13, 2022, to common shareholders of record on May 3, 2022.
“Banner’s core operating performance during the first quarter reflects the resilience of our super community bank strategy, and the ongoing implementation of Banner Forward, launched in the third quarter of 2021,” said Mark Grescovich, President and CEO. “Our performance for the first quarter benefited from lower operating expense, continued core deposit growth and the branch consolidations we completed during the current quarter. The unprecedented level of market liquidity and our continued focus on generating new client relationships contributed to our core deposits increasing 9% compared to March 31, 2021. We believe Banner remains well positioned for rising interest rates with a low-cost granular core deposit base and ample on-balance sheet liquidity to support renewed loan demand. Our approach of consistently delivering outstanding service and value to our clients, communities, colleagues, company and shareholders while holding fast to our performance objectives continues to guide our success.”
“During the third quarter of 2021 we began implementing Banner Forward, a bank-wide initiative to enhance revenue growth and reduce operating expense,” said Grescovich. “The remaining efficiency-related initiatives are anticipated to be implemented sequentially over the next two quarters with implementation of the revenue initiatives ramping up in the second half of the year. Full implementation is expected by 2023, with the goal of delivering sequential improvements in operating performance over the course of the next five quarters while staying true to our mission and values. Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes. During the first quarter of 2022, we incurred expenses of $2.5 million related to Banner Forward.”
At March 31, 2022, Banner Corporation had $16.78 billion in assets, $8.98 billion in net loans and $14.52 billion in deposits. Banner operates 141 full service branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
First Quarter 2022 Highlights
- Revenues decreased 5% to $138.1 million, compared to $146.0 million in the preceding quarter, and decreased 3% when compared to $141.9 million in the first quarter a year ago.
- Net interest income decreased to $118.7 million in the first quarter of 2022, compared to $121.5 million in the preceding quarter and increased compared to $117.7 million in the first quarter a year ago.
- Net interest margin on a tax equivalent basis was 3.18%, compared to 3.17% in the preceding quarter and 3.44% in the first quarter a year ago.
- Mortgage banking revenues decreased 21% to $4.4 million, compared to $5.6 million in the preceding quarter, and decreased 61% compared to $11.3 million in the first quarter a year ago.
- Return on average assets was 1.06%, compared to 1.18% in the preceding quarter and 1.24% in the first quarter a year ago.
- Net loans receivable increased to $8.98 billion at March 31, 2022, compared to $8.95 billion at December 31, 2021, and decreased 8% compared to $9.79 billion at March 31, 2021.
- Asset quality improved with non-performing assets decreasing to $19.1 million, or 0.11% of total assets, at March 31, 2022, compared to $23.7 million, or 0.14% of total assets in the preceding quarter, and decreasing from $37.0 million, or 0.23% of total assets, at March 31, 2021.
- The allowance for credit losses - loans was $125.5 million, or 1.38% of total loans receivable, as of March 31, 2022, compared to $132.1 million, or 1.45% of total loans receivable as of December 31, 2021 and $156.1 million, or 1.57% of total loans receivable as of March 31, 2021.
- Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 2% to $13.72 billion at March 31, 2022, compared to $13.49 billion at December 31, 2021, and increased 9% compared to $12.64 billion a year ago. Core deposits represented 94% of total deposits at March 31, 2022.
- Dividends to shareholders were $0.44 per share in the quarter ended March 31, 2022.
- Common shareholders’ equity per share decreased 8% to $45.49 at March 31, 2022, compared to $49.35 at the preceding quarter end, and decreased 2% from $46.60 a year ago.
- Tangible common shareholders’ equity per share* decreased 10% to $34.25 at March 31, 2022, compared to $38.02 at the preceding quarter end, and decreased 3% from $35.29 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 and total non-interest income) and the adjusted efficiency ratio (which excludes merger and acquisition-related expenses, COVID-19 expenses, Banner Forward expenses, amortization of core deposit intangibles, real estate owned operations, loss on extinguishment of debt and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.
Significant Recent Initiatives and Events
On February 18, 2022, Banner Bank completed the consolidation of seven branches and entered into a purchase and assumption agreement with Spokane Teachers Credit Union, Spokane, Washington (“STCU”) with respect to the sale to STCU of four Banner Bank branches located in Hayden, Idaho, and in Chewelah, Colville, and Kettle Falls, Washington, subject to certain regulatory approvals and customary closing conditions.
The sale includes deposit accounts with an approximate balance of $212 million. Banner Bank will receive a 5.0% premium in relation to the core deposits. The sale also includes all related branch premises and equipment.
Banner anticipates that these sale transactions will help to further shape the Bank’s service footprint, while contributing to our capital, reducing excess liquidity, and improving our operating efficiency. The transactions are expected to support the Banner Forward initiative by improving management’s focus on key operations and markets, and providing capital to reinvest in profitability enhancement initiatives. Banner’s goal is that the combined impact of these sales and Banner Forward initiatives will be positive to future annual operating earnings.
Income Statement Review
Net interest income was $118.7 million in the first quarter of 2022, compared to $121.5 million in the preceding quarter and $117.7 million in the first quarter a year ago, primarily reflecting the on-going low interest rate environment and loan forgiveness under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”).
Banner’s net interest margin on a tax equivalent basis was 3.18% for the first quarter of 2022, a one basis-point increase compared to 3.17% in the preceding quarter and a 26 basis-point decrease compared to 3.44% in the first quarter a year ago.
“Higher core deposit balances resulted in a decrease in the cost of funding liabilities which positively affected our net interest margin during the quarter. This impact was partially offset by lower interest income during the quarter, primarily as a result of the decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness,” said Grescovich. Acquisition accounting adjustments added three basis points to the net interest margin in the current quarter and five basis points in both the preceding quarter and in the first quarter a year ago. The total purchase discount for acquired loans was $8.5 million at March 31, 2022, compared to $9.7 million at December 31, 2021, and $13.9 million at March 31, 2021.
Average yields on interest-earning assets were 3.29% for both the first quarter of 2022 and the preceding quarter and decreased 35 basis points compared to 3.64% in the first quarter a year ago. The year over year decreases in average yield on interest-earning assets primarily reflects decreases in the average yield on investment securities and increases in the average balance of interest-bearing deposits, as excess liquidity was invested in low yielding short term investments. Average loan yields decreased seven basis points to 4.50% compared to 4.57% in the preceding quarter and increased seven basis points compared to 4.43% in the first quarter a year ago. The decrease in average loan yields during the current quarter compared to the preceding quarter was primarily the result of a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness during the quarter. Loan discount accretion added five basis points to average loan yields in the current quarter, eight basis points in the preceding quarter and seven basis points in the first quarter a year ago. Deposit costs were 0.06% in the first quarter of 2022, a one basis-point decrease compared to the preceding quarter and a five basis-point decrease compared to the first quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020 as well as an increase in the average balance of core deposits. The total cost of funding liabilities was 0.12% during the first quarter of 2022, a one basis-point decrease compared to the preceding quarter and a nine basis-point decrease compared to 0.21% in the first quarter a year ago.
Banner recorded a $7.0 million recapture of provision for credit losses in the current quarter (comprised of a $7.4 million recapture of provision for credit losses - loans, a $428,000 provision for credit losses - unfunded loan commitments and a $13,000 recapture of provision for credit losses - held-to-maturity debt securities). This recapture compares to a $5.2 million recapture of provision for credit losses in the prior quarter (comprised of an $8.1 million recapture of provision for credit losses - loans, a $2.3 million provision for credit losses - unfunded loan commitments and a $579,000 provision for credit losses - held-to-maturity debt securities) and a $9.3 million recapture of provision for credit losses in the first quarter a year ago (comprised of an $8.0 million recapture of provision for credit losses - loans, a $1.2 million recapture of provision for credit losses - unfunded loan commitments and a $4,000 provision for credit losses - held-to-maturity debt securities). The recapture of provision for credit losses for the current and preceding quarters primarily reflects improvement in the level of adversely classified loans, as well as in the economic indicators utilized to calculate credit losses.
Total non-interest income was $19.4 million in the first quarter of 2022, compared to $24.5 million in the preceding quarter and $24.3 million in the first quarter a year ago. Deposit fees and other service charges were $11.2 million in the first quarter of 2022, compared to $10.3 million in the preceding quarter and $8.9 million in the first quarter a year ago. The increase in deposit fees and other service charges from the first quarter a year ago is primarily a result of increased deposit transaction account activity. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $4.4 million in the first quarter, compared to $5.6 million in the preceding quarter and $11.3 million in the first quarter of 2021. The decrease from the prior quarter and from the first quarter of 2021 primarily reflects a reduction in the volume of one- to four-family loans sold, as well as a decrease in the gain on sale margin on one- to four-family held-for-sale loans. The reduction in volumes reflects a reduction in refinancing activity as interest rates increased during the current quarter. Home purchase activity accounted for 64% of one- to four-family mortgage loan originations in both the first quarter of 2022 and in the prior quarter and was 54% in the first quarter of 2021. The lower mortgage banking revenue for the current quarter compared to the prior quarter is also due in part to a $603,000 lower of cost or market downward adjustment recorded on multifamily held for sale loans due to increases in market interest rates, partially offset by $340,000 of gain recognized on the sale of multifamily loans as compared to none in the prior quarter. Miscellaneous non-interest income decreased to $1.7 million in the first quarter of 2022, compared to $4.7 million in the preceding quarter and $2.1 million in the first quarter a year ago. The decrease in miscellaneous non-interest income from the prior quarter is primarily a result of a valuation adjustment on the SBA servicing asset and higher gains recognized in the prior quarter related to both SBA loans sold and the disposition of closed branch locations.
Banner’s first quarter 2022 results included a $49,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and limited partnership investments, and a $435,000 net gain on the sale of securities. In the preceding quarter, results included a $2.7 million net gain for fair value adjustments and a $136,000 net loss on the sale of securities. In the first quarter a year ago, results included a $59,000 net gain for fair value adjustments and a $485,000 net gain on the sale of securities.
Total revenue decreased 5% to $138.1 million for the first quarter of 2022, compared to $146.0 million in the preceding quarter, and decreased 3% compared to $141.9 million in the first quarter a year ago. Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $137.6 million in the first quarter of 2022, compared to $143.4 million in the preceding quarter and $141.4 million in the first quarter of 2021.
Total non-interest expense was $91.2 million in the first quarter of 2022, compared to $91.8 million in the preceding quarter and $93.5 million in the first quarter of 2021. The decrease in non-interest expense for the current quarter compared to the prior quarter reflects a $665,000 decrease in occupancy and equipment expenses, a $1.6 million decrease in advertising and marketing expenses and a $1.5 million decrease in loss on extinguishment of debt, partially offset by a $1.7 million increase in salary and employee benefits expenses primarily due to severance costs and typical higher payroll taxes in the first quarter of a year partially offset by lower salary expense and a $1.4 million decrease in capitalized loan origination costs. Banner recorded a $793,000 loss on extinguishment of debt as a result of the redemption of $50.5 million of junior subordinated debentures during the first quarter of 2022, compared to a $2.3 million loss as a result of the redemption of $8.2 million of junior subordinated debentures during the prior quarter. The year-over-year quarterly decrease in non-interest expense primarily reflects decreases in salary and employee benefits expense, primarily due to a reduction in staffing, and professional and legal expenses, primarily due to a reduction in consultant expense. The year-over-year quarterly decreases in non-interest expense were partially offset by a decrease in capitalized loan origination costs and the previously mentioned loss on extinguishment of debt. Banner’s efficiency ratio was 66.04% for the current quarter, compared to 62.88% in the preceding quarter and 65.90% in same quarter a year ago. Banner’s adjusted efficiency ratio* was 62.09% for the current quarter, compared to 59.71% in the preceding quarter and 63.18% in the year ago quarter.
For the first quarter of 2022, Banner had $9.9 million in state and federal income tax expense for an effective tax rate of 18.4%, reflecting the benefits from tax exempt income and an adjustment to the deferred tax asset during the quarter. Banner’s statutory income tax rate is 23.6%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.
Balance Sheet Review
Total assets decreased to $16.78 billion at March 31, 2022, compared to $16.80 billion at December 31, 2021, and increased 4% when compared to $16.12 billion at March 31, 2021. The total of securities and interest-bearing deposits held at other banks was $6.06 billion at March 31, 2022, compared to $6.26 billion at December 31, 2021 and $4.81 billion at March 31, 2021. During the current quarter, Banner transferred $458.6 million of securities from available for sale to securities held to maturity to limit the impact that potential future interest rates changes would have on its accumulated other comprehensive income. The average effective duration of Banner's securities portfolio was approximately 6.2 years at March 31, 2022, compared to 5.2 years at March 31, 2021.
Total loans receivable increased to $9.11 billion at March 31, 2022, compared to $9.08 billion at December 31, 2021, and decreased when compared to $9.95 billion at March 31, 2021. The decrease in total loans receivable compared to the first quarter a year ago primarily reflects the forgiveness of SBA PPP loans. Excluding SBA PPP loans, total loans receivable increased $100.5 million during the current quarter and increased $420.2 million from the first quarter a year ago. SBA PPP loans decreased 56% to $58.6 million at March 31, 2022, compared to $133.9 million at December 31, 2021, and decreased 96% when compared to $1.32 billion at March 31, 2021. The decrease in SBA PPP loans was offset by increases in multifamily real estate and one- to four-family loans. Multifamily real estate loans increased 13% to $598.6 million at March 31, 2022, compared to $530.9 million at December 31, 2021, and increased 52% compared to $394.8 million a year ago. Commercial real estate loans decreased 2% to $3.71 billion at March 31, 2022, compared to $3.79 billion at December 31, 2021, and increased slightly compared to $3.69 billion a year ago. Commercial business loans were $1.96 billion at both March 31, 2022 and December 31, 2021, and decreased 37% compared to $3.09 billion a year ago, primarily due to SBA PPP loans forgiven. Excluding SBA PPP loans, commercial business loans increased 4% to $1.90 billion at March 31, 2022, compared to $1.83 billion at December 31, 2021, and increased 5% compared to $1.81 billion a year ago. Agricultural business loans decreased to $245.3 million at March 31, 2022, compared to $280.6 million at December 31, 2021 and decreased from $255.7 million a year ago. Total construction, land and land development loans were $1.33 billion at March 31, 2022, a 1% increase from $1.31 billion at both December 31, 2021, and March 31, 2021. Consumer loans increased to $567.6 million at March 31, 2022, compared to $555.9 million at December 31, 2021, and decreased from $570.7 million a year ago. One- to four-family loans increased to $708.1 million at March 31, 2022, compared to $657.5 million at December 31, 2021, and increased from $629.4 million a year ago.
Loans held for sale were $101.0 million at March 31, 2022, compared to $96.5 million at December 31, 2021, and $135.3 million at March 31, 2021. The volume of one- to four- family residential mortgage loans sold was $210.4 million in the current quarter, compared to $245.9 million in the preceding quarter and $300.3 million in the first quarter a year ago. Banner sold $15.8 million of multifamily loans during the first quarter of 2022, compared to none in the preceding quarter and $107.7 million in the first quarter a year ago.
Total deposits increased 1% to $14.52 billion at March 31, 2022, compared to $14.33 billion at December 31, 2021, and increased 7% when compared to $13.55 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 general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic. Non-interest-bearing account balances increased to $6.49 billion at March 31, 2022, compared to $6.39 billion at December 31, 2021, and increased 8% compared to $5.99 billion a year ago. Core deposits were 94% of total deposits at both March 31, 2022 and December 31, 2021 and 93% of total deposits a year ago. Certificates of deposit decreased to $800.4 million at March 31, 2022, compared to $838.6 million at December 31, 2021, and decreased 12% compared to $907.0 million a year earlier. Banner had no FHLB borrowings at March 31, 2022, compared to $50.0 million at December 31, 2021 and $100.0 million a year ago.
At March 31, 2022, total common shareholders’ equity was $1.56 billion, or 9.32% of assets, compared to $1.69 billion or 10.06% of assets at December 31, 2021, and $1.62 billion or 10.04% of assets a year ago. The decrease in total common shareholders’ equity during the current quarter was primarily due to a $154.3 million decrease in accumulated other comprehensive income related to an increase in the unrealized loss on available for sale securities reflecting the increase in market interest rates during the current quarter. At March 31, 2022, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.18 billion, or 7.18% of tangible assets*, compared to $1.30 billion, or 7.93% of tangible assets, at December 31, 2021, and $1.23 billion, or 7.80% of tangible assets, a year ago. Banner’s tangible book value per share* decreased to $34.25 at March 31, 2022, compared to $35.29 per share a year ago.
Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At March 31, 2022, Banner's common equity Tier 1 capital ratio was 11.39%, its Tier 1 leverage capital to average assets ratio was 8.58%, and its total capital to risk-weighted assets ratio was 14.05%.
Credit Quality
The allowance for credit losses - loans was $125.5 million at March 31, 2022, or 1.38% of total loans receivable and 674% of non-performing loans, compared to $132.1 million at December 31, 2021, or 1.45% of total loans receivable and 578% of non-performing loans, and $156.1 million at March 31, 2021, or 1.57% of total loans receivable and 426% 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 $12.9 million at March 31, 2022, compared to $12.4 million at December 31, 2021 and $12.1 million at March 31, 2021. Net loan recoveries totaled $748,000 in the first quarter of 2022, compared to $311,000 in the preceding quarter and $3.2 million of net loan charge-offs in the first quarter a year ago. Non-performing loans were $18.6 million at March 31, 2022, compared to $22.8 million at December 31, 2021, and $36.6 million a year ago. Real estate owned and other repossessed assets were $446,000 at March 31, 2022, compared to $869,000 at December 31, 2021, and $377,000 a year ago.
Banner’s total substandard loans were $178.4 million at March 31, 2022, compared to $198.4 million at December 31, 2021, and $311.6 million a year ago. The quarter over quarter decrease primarily reflects the payoff of substandard loans as well as balance paydowns and risk rating upgrades.
Banner’s total non-performing assets were $19.1 million, or 0.11% of total assets, at March 31, 2022, compared to $23.7 million, or 0.14% of total assets, at December 31, 2021, and $37.0 million, or 0.23% of total assets, a year ago.
Conference Call
Banner will host a conference call on Thursday April 21, 2022, at 8:00 a.m. PDT, to discuss its first quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (844) 200-6205 using access code 982074 to participate in the call. A replay will be available for one week at (866) 813-9403 using access code 681359, or at www.bannerbank.com.
About the Company
Banner Corporation is a $16.78 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.
Forward-Looking Statements
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner’s operating and stock price performance.
Factors that could cause Banner’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: (1) the effect of the COVID-19 pandemic, including on Banner’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate clients, including economic activity, employment levels and market liquidity; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on client behavior and net interest margin; (6) uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the potential transition away from LIBOR toward new interest rate benchmarks; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (10) the ability to access cost-effective funding; (11) disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, information technology systems or on the third-party vendors who perform critical processing functions; (12) changes in financial markets; (13) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (14) the costs, effects and outcomes of litigation; (15) legislation or regulatory changes, including but not limited to changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, other governmental initiatives affecting the financial services industry including as a result of COVID -19 and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) future acquisitions by Banner of other depository institutions or lines of business; (18) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; (19) the costs associated with Banner Forward and (20) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and (21) other risks detailed from time to time in Banner’s filings with the Securities and Exchange Commission including Banner’s Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
RESULTS OF OPERATIONS Quarters Ended (in thousands except shares and per share data) Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 INTEREST INCOME: Loans receivable $ 100,350 $ 104,929 $ 108,924 Mortgage-backed securities 14,109 13,220 9,371 Securities and cash equivalents 8,432 8,397 6,226 122,891 126,546 124,521 INTEREST EXPENSE: Deposits 2,086 2,384 3,609 Federal Home Loan Bank advances 291 348 934 Other borrowings 84 109 109 Junior subordinated debentures and subordinated notes 1,776 2,175 2,208 4,237 5,016 6,860 Net interest income 118,654 121,530 117,661 RECAPTURE OF PROVISION FOR CREDIT LOSSES (6,961 ) (5,243 ) (9,251 ) Net interest income after recapture of provision for credit losses 125,615 126,773 126,912 NON-INTEREST INCOME: Deposit fees and other service charges 11,189 10,341 8,939 Mortgage banking operations 4,440 5,643 11,347 Bank-owned life insurance 1,631 1,203 1,307 Miscellaneous 1,683 4,702 2,135 18,943 21,889 23,728 Net gain (loss) on sale of securities 435 (136 ) 485 Net change in valuation of financial instruments carried at fair value 49 2,721 59 Total non-interest income 19,427 24,474 24,272 NON-INTEREST EXPENSE: Salary and employee benefits 59,486 57,798 64,819 Less capitalized loan origination costs (6,230 ) (7,647 ) (9,696 ) Occupancy and equipment 13,220 13,885 12,989 Information / computer data services 6,651 6,441 6,203 Payment and card processing services 4,896 5,062 4,326 Professional and legal expenses 2,180 2,251 3,328 Advertising and marketing 461 2,071 1,263 Deposit insurance expense 1,524 1,340 1,533 State/municipal business and use taxes 1,162 976 1,065 Real estate operations (79 ) 49 (242 ) Amortization of core deposit intangibles 1,424 1,574 1,711 Loss on extinguishment of debt 793 2,284 — Miscellaneous 5,707 5,594 5,509 91,195 91,678 92,808 COVID-19 expenses — 127 148 Merger and acquisition-related expenses — — 571 Total non-interest expense 91,195 91,805 93,527 Income before provision for income taxes 53,847 59,442 57,657 PROVISION FOR INCOME TAXES 9,884 9,515 10,802 NET INCOME $ 43,963 $ 49,927 $ 46,855 Earnings per share available to common shareholders: Basic $ 1.28 $ 1.46 $ 1.34 Diluted $ 1.27 $ 1.44 $ 1.33 Cumulative dividends declared per common share $ 0.44 $ 0.41 $ 0.41 Weighted average common shares outstanding: Basic 34,300,742 34,292,967 34,973,383 Diluted 34,598,436 34,575,607 35,303,483 Increase (decrease) in common shares outstanding 120,152 641 (423,857 ) FINANCIAL CONDITION Percentage Change (in thousands except shares and per share data) Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Prior
QtrPrior
Yr QtrASSETS Cash and due from banks $ 414,780 $ 358,461 $ 296,184 15.7% 40.0% Interest-bearing deposits 1,573,608 1,775,839 1,353,743 (11.4)% 16.2% Total cash and cash equivalents 1,988,388 2,134,300 1,649,927 (6.8)% 20.5% Securities - trading 27,354 26,981 25,039 1.4% 9.2% Securities - available for sale 3,147,547 3,638,993 2,989,760 (13.5)% 5.3% Securities - held to maturity 1,015,522 520,922 441,857 94.9% 129.8% Total securities 4,190,423 4,186,896 3,456,656 0.1% 21.2% Federal Home Loan Bank stock 10,000 12,000 14,001 (16.7)% (28.6)% Securities purchased under agreements to resell 300,000 300,000 — —% nm Loans held for sale 100,978 96,487 135,263 4.7% (25.3)% Loans receivable 9,109,869 9,084,763 9,947,697 0.3% (8.4)% Allowance for credit losses - loans (125,471 ) (132,099 ) (156,054 ) (5.0)% (19.6)% Net loans receivable 8,984,398 8,952,664 9,791,643 0.4% (8.2)% Accrued interest receivable 41,827 42,916 49,214 (2.5)% (15.0)% Real estate owned (REO) held for sale, net 429 852 340 (49.6)% 26.2% Property and equipment, net 142,594 148,759 161,268 (4.1)% (11.6)% Goodwill 373,121 373,121 373,121 —% —% Other intangibles, net 13,431 14,855 19,715 (9.6)% (31.9)% Bank-owned life insurance 294,556 244,156 191,388 20.6% 53.9% Operating lease right-of-use assets 52,792 55,257 56,217 (4.5)% (6.1)% Other assets 283,234 242,609 221,039 16.7% 28.1% Total assets $ 16,776,171 $ 16,804,872 $ 16,119,792 (0.2)% 4.1% LIABILITIES Deposits: Non-interest-bearing $ 6,494,852 $ 6,385,177 $ 5,994,693 1.7% 8.3% Interest-bearing transaction and savings accounts 7,228,558 7,103,125 6,647,196 1.8% 8.7% Interest-bearing certificates 800,364 838,631 906,978 (4.6)% (11.8)% Total deposits 14,523,774 14,326,933 13,548,867 1.4% 7.2% Advances from Federal Home Loan Bank — 50,000 100,000 (100.0)% (100.0)% Customer repurchase agreements and other borrowings 266,778 264,490 216,260 0.9% 23.4% Subordinated notes, net 98,658 98,564 98,290 0.1% 0.4% Junior subordinated debentures at fair value 70,510 119,815 117,248 (41.2)% (39.9)% Operating lease liabilities 57,343 59,756 59,884 (4.0)% (4.2)% Accrued expenses and other liabilities 148,689 148,303 313,801 0.3% (52.6)% Deferred compensation 46,639 46,684 46,625 (0.1)% —% Total liabilities 15,212,391 15,114,545 14,500,975 0.6% 4.9% SHAREHOLDERS’ EQUITY Common stock 1,298,212 1,299,381 1,326,269 (0.1)% (2.1)% Retained earnings 419,659 390,762 279,582 7.4% 50.1% Other components of shareholders’ equity (154,091 ) 184 12,966 nm nm Total shareholders’ equity 1,563,780 1,690,327 1,618,817 (7.5)% (3.4)% Total liabilities and shareholders’ equity $ 16,776,171 $ 16,804,872 $ 16,119,792 (0.2)% 4.1% Common Shares Issued: Shares outstanding at end of period 34,372,784 34,252,632 34,735,343 Common shareholders’ equity per share (1) $ 45.49 $ 49.35 $ 46.60 Common shareholders’ tangible equity per share (1) (2) $ 34.25 $ 38.02 $ 35.29 Common shareholders’ tangible equity to tangible assets (2) 7.18 % 7.93 % 7.80 % Consolidated Tier 1 leverage capital ratio 8.58 % 8.76 % 9.10 % (1 ) Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding. (2 ) Common shareholders’ tangible equity excludes goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final two pages of the press release tables. ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Percentage Change LOANS (1) Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Prior
QtrPrior
Yr QtrCommercial real estate (CRE): Owner-occupied $ 872,801 $ 831,623 $ 759,490 5.0% 14.9% Investment properties 1,670,896 1,674,027 1,616,795 (0.2)% 3.3% Small balance CRE 1,162,164 1,281,863 1,315,435 (9.3)% (11.7)% Multifamily real estate 598,588 530,885 394,787 12.8% 51.6% Construction, land and land development: Commercial construction 179,796 167,998 197,476 7.0% (9.0)% Multifamily construction 274,015 259,116 305,694 5.7% (10.4)% One- to four-family construction 556,347 568,753 542,840 (2.2)% 2.5% Land and land development 317,560 313,454 266,730 1.3% 19.1% Commercial business: Commercial business 1,081,847 1,038,206 1,094,952 4.2% (1.2)% SBA PPP 57,854 132,574 1,280,291 (56.4)% (95.5)% Small business scored 817,065 792,310 717,502 3.1% 13.9% Agricultural business, including secured by farmland: Agricultural business, including secured by farmland 244,580 279,224 219,335 (12.4)% 11.5% SBA PPP 708 1,354 36,316 (47.7)% (98.1)% One- to four-family residential 708,096 657,474 629,357 7.7% 12.5% Consumer: Consumer—home equity revolving lines of credit 470,485 458,533 466,132 2.6% 0.9% Consumer—other 97,067 97,369 104,565 (0.3)% (7.2)% Total loans receivable $ 9,109,869 $ 9,084,763 $ 9,947,697 0.3% (8.4)% Restructured loans performing under their restructured terms $ 5,279 $ 5,309 $ 6,424 Loans 30 - 89 days past due and on accrual $ 9,611 $ 11,558 $ 19,233 Total delinquent loans (including loans on non-accrual), net $ 19,231 $ 18,688 $ 42,444 Total delinquent loans / Total loans receivable 0.21 % 0.21 % 0.43 % (1) December 31, 2021 and March 31, 2021 loan balances were reclassified to match current period presentation.
LOANS BY GEOGRAPHIC LOCATION Percentage Change Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Prior
QtrPrior
Yr QtrAmount Percentage Amount Amount Washington $ 4,233,162 46.5% $ 4,264,590 $ 4,683,600 (0.7)% (9.6)% California 2,191,993 24.1% 2,138,340 2,320,384 2.5% (5.5)% Oregon 1,620,479 17.8% 1,652,364 1,801,104 (1.9)% (10.0)% Idaho 539,245 5.9% 525,141 539,061 2.7% —% Utah 84,720 0.9% 74,913 92,399 13.1% (8.3)% Other 440,270 4.8% 429,415 511,149 2.5% (13.9)% Total loans receivable $ 9,109,869 100.0% $ 9,084,763 $ 9,947,697 0.3% (8.4)% ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)LOAN ORIGINATIONS Quarters Ended Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Commercial real estate $ 87,421 $ 196,350 $ 91,217 Multifamily real estate 21,169 25,933 12,878 Construction and land 545,475 522,081 447,369 Commercial business: Commercial business 272,513 203,549 115,911 SBA PPP — — 428,180 Agricultural business 28,676 13,061 27,167 One-to four-family residential 55,821 52,251 57,731 Consumer 121,959 101,365 87,322 Total loan originations (excluding loans held for sale) $ 1,133,034 $ 1,114,590 $ 1,267,775 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Quarters Ended CHANGE IN THE Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 ALLOWANCE FOR CREDIT LOSSES – LOANS Balance, beginning of period $ 132,099 $ 139,915 $ 167,279 Recapture of provision for credit losses – loans (7,376 ) (8,127 ) (8,035 ) Recoveries of loans previously charged off: Commercial real estate 87 635 24 Construction and land 384 — 100 One- to four-family real estate 40 47 113 Commercial business 149 267 979 Agricultural business, including secured by farmland 118 5 — Consumer 216 140 296 994 1,094 1,512 Loans charged off: Commercial real estate (2 ) (1 ) (3,763 ) Multifamily real estate — (59 ) — Construction and land (5 ) — — Commercial business (82 ) (488 ) (789 ) Consumer (157 ) (235 ) (150 ) (246 ) (783 ) (4,702 ) Net recoveries (charge-offs) 748 311 (3,190 ) Balance, end of period $ 125,471 $ 132,099 $ 156,054 Net recoveries (charge-offs) / Average loans receivable 0.008 % 0.003 % (0.032 )% ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES – LOANS Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Specific or allocated credit loss allowance: Commercial real estate $ 47,264 $ 52,995 $ 59,411 Multifamily real estate 7,183 7,043 4,367 Construction and land 26,679 27,294 36,440 One- to four-family real estate 8,109 8,205 7,988 Commercial business 26,655 26,421 31,411 Agricultural business, including secured by farmland 2,586 3,190 4,617 Consumer 6,995 6,951 11,820 Total allowance for credit losses – loans $ 125,471 $ 132,099 $ 156,054 Allowance for credit losses - loans / Total loans receivable 1.38 % 1.45 % 1.57 % Allowance for credit losses - loans / Non-performing loans 674 % 578 % 426 % Quarters Ended CHANGE IN THE Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Balance, beginning of period $ 12,432 $ 10,127 $ 13,297 Provision/(recapture) for credit losses - unfunded loan commitments 428 2,305 (1,220 ) Balance, end of period $ 12,860 $ 12,432 $ 12,077 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 NON-PERFORMING ASSETS Loans on non-accrual status: Secured by real estate: Commercial $ 10,618 $ 14,159 $ 21,615 Construction and land 119 479 986 One- to four-family 2,199 2,711 4,456 Commercial business 1,845 2,156 4,194 Agricultural business, including secured by farmland 1,021 1,022 1,536 Consumer 2,123 1,754 2,244 17,925 22,281 35,031 Loans more than 90 days delinquent, still on accrual: Secured by real estate: One- to four-family 210 436 1,524 Commercial business 351 2 37 Consumer 121 117 — 682 555 1,561 Total non-performing loans 18,607 22,836 36,592 REO 429 852 340 Other repossessed assets 17 17 37 Total non-performing assets $ 19,053 $ 23,705 $ 36,969 Total non-performing assets to total assets 0.11 % 0.14 % 0.23 % Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 LOANS BY CREDIT RISK RATING Pass $ 8,924,598 $ 8,874,468 $ 9,584,429 Special Mention 6,908 11,932 51,692 Substandard 178,363 198,363 311,576 Total $ 9,109,869 $ 9,084,763 $ 9,947,697 Quarters Ended REAL ESTATE OWNED Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Balance, beginning of period $ 852 $ 852 $ 816 Proceeds from dispositions of REO (607 ) — (783 ) Gain on sale of REO 184 — 307 Balance, end of period $ 429 $ 852 $ 340 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) DEPOSIT COMPOSITION Percentage Change Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Prior
QtrPrior Yr
QtrNon-interest-bearing $ 6,494,852 $ 6,385,177 $ 5,994,693 1.7% 8.3% Interest-bearing checking 1,971,936 1,947,414 1,722,085 1.3% 14.5% Regular savings accounts 2,853,891 2,784,716 2,597,731 2.5% 9.9% Money market accounts 2,402,731 2,370,995 2,327,380 1.3% 3.2% Total interest-bearing transaction and savings accounts 7,228,558 7,103,125 6,647,196 1.8% 8.7% Total core deposits 13,723,410 13,488,302 12,641,889 1.7% 8.6% Interest-bearing certificates 800,364 838,631 906,978 (4.6)% (11.8)% Total deposits $ 14,523,774 $ 14,326,933 $ 13,548,867 1.4% 7.2% GEOGRAPHIC CONCENTRATION OF DEPOSITS Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Percentage Change Amount Percentage Amount Amount Prior
QtrPrior Yr
QtrWashington $ 8,067,253 55.5 % $ 7,952,376 $ 7,504,389 1.4% 7.5% Oregon 3,140,393 21.6 % 3,067,054 2,929,027 2.4% 7.2% California 2,520,655 17.4 % 2,524,296 2,401,299 (0.1)% 5.0% Idaho 795,473 5.5 % 783,207 714,152 1.6% 11.4% Total deposits $ 14,523,774 100.0 % $ 14,326,933 $ 13,548,867 1.4% 7.2% INCLUDED IN TOTAL DEPOSITS Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Public non-interest-bearing accounts $ 189,907 $ 193,917 $ 151,850 Public interest-bearing transaction & savings accounts 165,692 159,957 169,192 Public interest-bearing certificates 37,689 39,961 51,021 Total public deposits $ 393,288 $ 393,835 $ 372,063 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Actual Minimum to be
categorized as
"Adequately Capitalized"Minimum to be
categorized as
"Well Capitalized"REGULATORY CAPITAL RATIOS AS OF MARCH 31, 2022 Amount Ratio Amount Ratio Amount Ratio Banner Corporation-consolidated: Total capital to risk-weighted assets $ 1,636,430 14.05% $ 931,972 8.00% $ 1,164,964 10.00% Tier 1 capital to risk-weighted assets 1,412,895 12.13% 698,979 6.00% 698,979 6.00% Tier 1 leverage capital to average assets 1,412,895 8.58% 658,360 4.00% n/a n/a Common equity tier 1 capital to risk-weighted assets 1,326,395 11.39% 524,234 4.50% n/a n/a Banner Bank: Total capital to risk-weighted assets 1,567,914 13.47% 931,257 8.00% 1,164,071 10.00% Tier 1 capital to risk-weighted assets 1,444,379 12.41% 698,442 6.00% 931,257 8.00% Tier 1 leverage capital to average assets 1,444,379 8.78% 658,054 4.00% 822,568 5.00% Common equity tier 1 capital to risk-weighted assets 1,444,379 12.41% 523,832 4.50% 756,646 6.50% ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) (rates / ratios annualized) ANALYSIS OF NET INTEREST SPREAD Quarters Ended Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Average
BalanceInterest
and
DividendsYield /
Cost(3)Average
BalanceInterest
and
DividendsYield /
Cost(3)Average
BalanceInterest
and
DividendsYield /
Cost(3)Interest-earning assets: Held for sale loans $ 130,221 $ 1,115 3.47 % $ 73,101 $ 601 3.26 % $ 119,341 $ 925 3.14 % Mortgage loans 7,347,662 81,032 4.47 % 7,362,363 83,059 4.48 % 7,144,770 80,580 4.57 % Commercial/agricultural loans 1,479,216 15,011 4.12 % 1,460,486 14,966 4.07 % 1,519,062 15,919 4.25 % SBA PPP loans 88,720 2,784 12.73 % 209,776 5,845 11.05 % 1,172,492 10,792 3.73 % Consumer and other loans 115,881 1,700 5.95 % 119,658 1,749 5.80 % 127,469 1,947 6.19 % Total loans(1) 9,161,700 101,642 4.50 % 9,225,384 106,220 4.57 % 10,083,134 110,163 4.43 % Mortgage-backed securities 2,975,263 14,235 1.94 % 2,838,759 13,344 1.86 % 1,953,820 9,472 1.97 % Other securities 1,573,834 8,429 2.17 % 1,550,383 8,466 2.17 % 1,048,856 6,687 2.59 % Equity securities — — — % — — — % 1,742 — — % Interest-bearing deposits with banks 1,697,545 820 0.20 % 1,901,165 731 0.15 % 1,032,138 262 0.10 % FHLB stock 11,756 106 3.66 % 12,000 135 4.46 % 15,952 161 4.09 % Total investment securities 6,258,398 23,590 1.53 % 6,302,307 22,676 1.43 % 4,052,508 16,582 1.66 % Total interest-earning assets 15,420,098 125,232 3.29 % 15,527,691 128,896 3.29 % 14,135,642 126,745 3.64 % Non-interest-earning assets 1,372,182 1,306,437 1,237,281 Total assets $ 16,792,280 $ 16,834,128 $ 15,372,923 Deposits: Interest-bearing checking accounts $ 1,958,824 273 0.06 % $ 1,875,097 289 0.06 % $ 1,616,824 315 0.08 % Savings accounts 2,816,774 354 0.05 % 2,773,597 400 0.06 % 2,486,820 521 0.08 % Money market accounts 2,390,621 506 0.09 % 2,367,861 559 0.09 % 2,242,748 775 0.14 % Certificates of deposit 825,028 953 0.47 % 840,920 1,136 0.54 % 913,053 1,998 0.89 % Total interest-bearing deposits 7,991,247 2,086 0.11 % 7,857,475 2,384 0.12 % 7,259,445 3,609 0.20 % Non-interest-bearing deposits 6,421,143 — — % 6,523,149 — — % 5,663,820 — — % Total deposits 14,412,390 2,086 0.06 % 14,380,624 2,384 0.07 % 12,923,265 3,609 0.11 % Other interest-bearing liabilities: FHLB advances 42,222 291 2.80 % 50,000 348 2.76 % 144,444 934 2.62 % Other borrowings 266,148 84 0.13 % 266,559 109 0.16 % 202,930 109 0.22 % Junior subordinated debentures and subordinated notes 191,985 1,776 3.75 % 246,510 2,175 3.50 % 247,944 2,208 3.61 % Total borrowings 500,355 2,151 1.74 % 563,069 2,632 1.85 % 595,318 3,251 2.21 % Total funding liabilities 14,912,745 4,237 0.12 % 14,943,693 5,016 0.13 % 13,518,583 6,860 0.21 % Other non-interest-bearing liabilities(2) 225,953 216,940 207,560 Total liabilities 15,138,698 15,160,633 13,726,143 Shareholders’ equity 1,653,582 1,673,495 1,646,780 Total liabilities and shareholders’ equity $ 16,792,280 $ 16,834,128 $ 15,372,923 Net interest income/rate spread (tax equivalent) $ 120,995 3.17 % $ 123,880 3.16 % $ 119,885 3.43 % Net interest margin (tax equivalent) 3.18 % 3.17 % 3.44 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (2,341 ) (2,350 ) (2,224 ) Net interest income and margin, as reported $ 118,654 3.12 % $ 121,530 3.11 % $ 117,661 3.38 % Additional Key Financial Ratios: Return on average assets 1.06 % 1.18 % 1.24 % Return on average equity 10.78 % 11.84 % 11.54 % Average equity/average assets 9.85 % 9.94 % 10.71 % Average interest-earning assets/average interest-bearing liabilities 181.59 % 184.40 % 179.96 % Average interest-earning assets/average funding liabilities 103.40 % 103.91 % 104.56 % Non-interest income/average assets 0.47 % 0.58 % 0.64 % Non-interest expense/average assets 2.20 % 2.16 % 2.47 % Efficiency ratio(4) 66.04 % 62.88 % 65.90 % Adjusted efficiency ratio(5) 62.09 % 59.71 % 63.18 % (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 $1.3 million for both the three months ended March 31, 2022 and December 31, 2021 and $1.2 million for the three months ended March 31, 2021. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million, $1.1 million and $1.0 million for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively. (4) Non-interest expense divided by the total of net interest income and non-interest income. (5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables. ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) * Non-GAAP Financial Measures In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below: ADJUSTED REVENUE Quarters Ended Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Net interest income $ 118,654 $ 121,530 $ 117,661 Total non-interest income 19,427 24,474 24,272 Total revenue (GAAP) 138,081 146,004 141,933 Exclude net (gain) loss on sale of securities (435 ) 136 (485 ) Exclude net change in valuation of financial instruments carried at fair value (49 ) (2,721 ) (59 ) Adjusted revenue (non-GAAP) $ 137,597 $ 143,419 $ 141,389 ADJUSTED EARNINGS Quarters Ended Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Net income (GAAP) $ 43,963 $ 49,927 $ 46,855 Exclude net (gain) loss on sale of securities (435 ) 136 (485 ) Exclude net change in valuation of financial instruments carried at fair value (49 ) (2,721 ) (59 ) Exclude merger and acquisition-related expenses — — 571 Exclude COVID-19 expenses — 127 148 Exclude Banner Forward expenses 2,465 1,157 950 Exclude loss on extinguishment of debt 793 2,284 — Exclude related net tax (benefit) expense (666 ) (236 ) (270 ) Total adjusted earnings (non-GAAP) $ 46,071 $ 50,674 $ 47,710 Diluted earnings per share (GAAP) $ 1.27 $ 1.44 $ 1.33 Diluted adjusted earnings per share (non-GAAP) $ 1.33 $ 1.47 $ 1.35 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) ADJUSTED EFFICIENCY RATIO Quarters Ended Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Non-interest expense (GAAP) $ 91,195 $ 91,805 $ 93,527 Exclude merger and acquisition-related expenses — — (571 ) Exclude COVID-19 expenses — (127 ) (148 ) Exclude Banner Forward expenses (2,465 ) (1,157 ) (950 ) Exclude CDI amortization (1,424 ) (1,574 ) (1,711 ) Exclude state/municipal tax expense (1,162 ) (976 ) (1,065 ) Exclude REO operations 79 (49 ) 242 Exclude loss on extinguishment of debt (793 ) (2,284 ) — Adjusted non-interest expense (non-GAAP) $ 85,430 $ 85,638 $ 89,324 Net interest income (GAAP) $ 118,654 $ 121,530 $ 117,661 Non-interest income (GAAP) 19,427 24,474 24,272 Total revenue 138,081 146,004 141,933 Exclude net (gain) loss on sale of securities (435 ) 136 (485 ) Exclude net change in valuation of financial instruments carried at fair value (49 ) (2,721 ) (59 ) Adjusted revenue (non-GAAP) $ 137,597 $ 143,419 $ 141,389 Efficiency ratio (GAAP) 66.04 % 62.88 % 65.90 % Adjusted efficiency ratio (non-GAAP) 62.09 % 59.71 % 63.18 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Shareholders’ equity (GAAP) $ 1,563,780 $ 1,690,327 $ 1,618,817 Exclude goodwill and other intangible assets, net 386,552 387,976 392,836 Tangible common shareholders’ equity (non-GAAP) $ 1,177,228 $ 1,302,351 $ 1,225,981 Total assets (GAAP) $ 16,776,171 $ 16,804,872 $ 16,119,792 Exclude goodwill and other intangible assets, net 386,552 387,976 392,836 Total tangible assets (non-GAAP) $ 16,389,619 $ 16,416,896 $ 15,726,956 Common shareholders’ equity to total assets (GAAP) 9.32 % 10.06 % 10.04 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 7.18 % 7.93 % 7.80 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE Tangible common shareholders’ equity (non-GAAP) $ 1,177,228 $ 1,302,351 $ 1,225,981 Common shares outstanding at end of period 34,372,784 34,252,632 34,735,343 Common shareholders’ equity (book value) per share (GAAP) $ 45.49 $ 49.35 $ 46.60 Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 34.25 $ 38.02 $ 35.29 CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO PETER J. CONNER, CFO (509) 527-3636