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Banner Corporation Reports Net Income of $49.1 Million, or $1.43 Per Diluted Share, for Third Quarter 2022; Declares Quarterly Cash Dividend of $0.44 Per Share
ソース: Nasdaq GlobeNewswire / 19 10 2022 16:00:01 America/New_York
WALLA WALLA, Wash., Oct. 19, 2022 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $49.1 million, or $1.43 per diluted share, for the third quarter of 2022, a 2% increase compared to $48.0 million, or $1.39 per diluted share, for the preceding quarter and a 2% decrease compared to $49.9 million, or $1.44 per diluted share, for the third quarter of 2021. Banner’s third quarter 2022 results include $6.1 million of provision for credit losses, compared to $4.5 million of provision for credit losses in the preceding quarter and $8.6 million in recapture of provision for credit losses in the third quarter of 2021. In addition, Banner recognized a $7.8 million gain related to the branch sale completed during the preceding quarter. For the first nine months of 2022, net income was $141.0 million, or $4.09 per diluted share, compared to net income of $151.1 million, or $4.32 per diluted share for the same period a year earlier. Banner’s first nine months of 2022 results include $3.7 million in provision for credit losses, compared to $28.1 million in recapture of provision for credit losses in the first nine months of 2021.
Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.44 per share. The dividend will be payable November 10, 2022, to common shareholders of record on October 31, 2022.
“Banner’s third quarter operating results reflect the continued successful execution of our super community bank strategy, and the ongoing implementation of Banner Forward,” said Mark Grescovich, President and CEO. “Our performance for the third quarter of 2022 benefited from solid loan growth and higher yields on interest-earning assets that led to net interest margin expansion. Our continued focus on fostering new client relationships contributed to our 10% growth in loans, excluding PPP loans, compared to September 30, 2021. We remain well positioned for rising interest rates with an asset sensitive position, which should further expand our net interest margin, and ample on-balance sheet liquidity to support loan demand and mitigate rising deposit costs. Our goal of consistently delivering outstanding service and value to our clients, communities, colleagues and shareholders while meeting our performance objectives continues to guide our success.”
“During the third quarter of 2021 we began implementing Banner Forward, a bank-wide initiative to enhance revenue growth and reduce operating expense,” said Grescovich. “Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes. The revenue enhancements associated with Banner Forward are already starting to have a positive impact on earnings, and the implementation of the revenue initiatives are expected to continue ramping up over the fourth quarter and into 2023. The remaining efficiency-related initiatives associated with Banner Forward are anticipated to be implemented during the fourth quarter, and we expect full implementation of Banner Forward by the end of next year. During the third quarter of 2022, we incurred expenses of $411,000 related to Banner Forward.”
At September 30, 2022, Banner Corporation had $16.36 billion in assets, $9.69 billion in net loans and $14.23 billion in deposits. Banner operates 137 full service branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
Third Quarter 2022 Highlights
- Revenues increased 4% to $162.0 million, compared to $156.2 million in the preceding quarter, and increased 4% compared to $155.5 million in the third quarter a year ago.
- Net interest income increased 14% to $146.4 million in the third quarter of 2022, compared to $129.0 million in the preceding quarter and increased 13%, compared to $130.1 million in the third quarter a year ago.
- Net interest margin, on a tax equivalent basis, was 3.85%, compared to 3.44% in the preceding quarter and 3.47% in the third quarter a year ago.
- Mortgage banking revenues decreased 97% to $105,000, compared to $4.0 million in the preceding quarter, and decreased 99% compared to $9.6 million in the third quarter a year ago.
- Return on average assets was 1.18%, compared to 1.16% in the preceding quarter and 1.20% in the third quarter a year ago.
- Net loans receivable increased 4% to $9.69 billion at September 30, 2022, compared to $9.33 billion at June 30, 2022, and increased 7% compared to $9.08 billion at September 30, 2021.
- Non-performing assets decreased to $15.6 million, or 0.10% of total assets, at September 30, 2022, compared to $19.1 million, or 0.12% of total assets at June 30, 2022, and $29.7 million, or 0.18% of total assets, at September 30, 2021.
- The allowance for credit losses - loans was $135.9 million, or 1.38% of total loans receivable, as of September 30, 2022, compared to $128.7 million, or 1.36% of total loans receivable as of June 30, 2022 and $139.9 million, or 1.52% of total loans receivable as of September 30, 2021.
- Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased to $13.51 billion at September 30, 2022, compared to $13.46 billion at June 30, 2022, and $13.31 billion a year ago. Core deposits represented 95% of total deposits at September 30, 2022.
- Dividends to shareholders were $0.44 per share in the quarter ended September 30, 2022.
- Common shareholders’ equity per share decreased 5% to $41.20 at September 30, 2022, compared to $43.46 at the preceding quarter end, and decreased 15% from $48.67 a year ago.
- Tangible common shareholders’ equity per share* decreased 7% to $29.97 at September 30, 2022, compared to $32.20 at the preceding quarter end, and decreased 20% from $37.30 a year ago.
*Non-GAAP (Generally Accepted Accounting Principles) measure; see the discussion and reconciliation of Non-GAAP Financial Measures beginning on page 16.
Income Statement Review
Net interest income was $146.4 million in the third quarter of 2022, compared to $129.0 million in the preceding quarter and $130.1 million in the third quarter a year ago. Banner’s net interest margin on a tax equivalent basis was 3.85% for the third quarter of 2022, a 41 basis-point increase compared to 3.44% in the preceding quarter and a 38 basis-point increase compared to 3.47% in the third quarter a year ago. “Rising market interest rates during the quarter produced higher yields on loans and investment securities which improved our net interest margin. Our net interest margin was also enhanced by increases in average loan balances during the quarter,” said Grescovich.
Average yields on interest-earning assets increased 43 basis points to 3.97% for the third quarter of 2022 compared to 3.54% for the preceding quarter and increased 35 basis points compared to 3.62% in the third quarter a year ago. Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System has increased the target range for the federal funds rate by 300 basis points, including 150 basis points during the third quarter of 2022, to a range of 3.00% to 3.25%. 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 28 basis points to 4.82% compared to 4.54% in the preceding quarter and decreased six basis points compared to 4.88% in the third quarter a year ago. The increase in average loan yields during the current quarter compared to the preceding quarter was primarily the result of rising interest rates as well as increases in average loan balances. The year-over-year decrease in average loan yields was primarily the result of a decline in the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness compared to the prior year quarter. Total deposit costs were 0.07% in the third quarter of 2022, which was a one basis-point increase compared to the preceding quarter and a one basis-point decrease compared to the third quarter a year ago. The total cost of funding liabilities was 0.13% during the third quarter of 2022, a two basis-point increase compared to the preceding quarter and a three basis-point decrease compared to 0.16% in the third quarter a year ago.
Banner recorded a $6.1 million provision for credit losses in the current quarter (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). This compares to a $4.5 million provision for credit losses in the prior quarter (comprised of a $3.1 million provision for credit losses - loans, a $1.4 million provision for credit losses - unfunded loan commitments and a $4,000 provision for credit losses - held-to-maturity debt securities) and a $8.6 million recapture of provision for credit losses in the third quarter a year ago (comprised of an $8.9 million recapture of provision for credit losses - loans, a $218,000 provision for credit losses - unfunded loan commitments and a $6,000 recapture of provision for credit losses - held-to-maturity debt securities). The provision for credit losses for the current and preceding quarter primarily reflects loan growth and, to a lesser extent, a deterioration in forecasted economic conditions and indicators utilized to estimate credit losses.
Total non-interest income was $15.6 million in the third quarter of 2022, compared to $27.2 million in the preceding quarter and $25.3 million in the third quarter a year ago. The decrease in non-interest income during the current quarter, compared to the prior quarter was primarily due to a $7.8 million gain recognized on the branch sale completed during the prior quarter, as well as a $3.9 million decrease in mortgage banking revenues. Deposit fees and other service charges were $11.4 million in the third quarter of 2022, compared to $11.0 million in the preceding quarter and $10.5 million in the third quarter a year ago. The increase in deposit fees and other service charges from the third quarter a year ago primarily reflects increased deposit transaction account activity and the benefit from implementing Banner Forward initiatives. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $105,000 in the third quarter, compared to $4.0 million in the preceding quarter and $9.6 million in the third quarter a year ago. The decrease from the preceding quarter and from the third quarter of 2021 primarily reflects a reduction in the volume and a decrease in the gain on sale margin for one- to four-family loans sold along with a negative fair market adjustment on multifamily held for sale loans. The reduction in one-to four family loans sold primarily reflects a reduction in refinancing activity, as well as decreased purchase activity as interest rates increased during the current quarter. Home purchase activity accounted for 88% of one- to four-family mortgage loan originations in the third quarter of 2022, compared to 82% in the preceding quarter and was 68% in the third quarter of 2021. Mortgage banking revenue included a $2.2 million and $458,000 lower of cost or market downward adjustment recorded for the current quarter and preceding quarter, respectively, on multifamily held for sale loans due to increases in market interest rates this year.
Banner’s third quarter 2022 results included a $532,000 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 $6,000 net gain on the sale of securities. In the preceding quarter, results included a $69,000 net gain for fair value adjustments and a $32,000 net gain on the sale of securities. In the third quarter a year ago, results included a $1.8 million net gain for fair value adjustments and a $56,000 net gain on the sale of securities.
Total revenue increased 4% to $162.0 million for the third quarter of 2022, compared to $156.2 million in the preceding quarter, and increased 4% compared to $155.5 million in the third quarter of 2021. Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities, the net change in valuation of financial instruments, and the gain on sale of branches) was $161.5 million in the third quarter of 2022, compared to $148.3 million in the preceding quarter and $153.6 million in the third quarter a year ago. In the first nine months of the year, adjusted revenue* was $447.4 million, compared to $444.8 million in the first nine months of 2021.
Total non-interest expense was $95.0 million in the third quarter of 2022, compared to $92.1 million in the preceding quarter and $102.1 million in the third quarter of 2021. The increase in non-interest expense for the current quarter compared to the prior quarter primarily reflects an $807,000 increase in salary and employee benefits expenses, primarily due to an increase in bonus and commission expense, a $1.2 million decrease in capitalized loan origination costs, primarily due to decreases in production for one- to four-family residential and construction loans, and an $806,000 increase in information / computer data services expense, primarily due to an increase in computer software expenses, partially offset by a $1.3 million decrease in occupancy and equipment expense, primarily due to a reduction in building rent expense during the current quarter as the result of exiting a large lease agreement in the second quarter of 2022. The year-over-year quarterly decrease in non-interest expense primarily reflects a decrease in professional and legal expenses, primarily due to a reduction in consultant expense, and a reduction in occupancy and equipment expense, due to the previously mentioned reduction in building rent expense, partially offset by an increase in salary and employee benefits expense and a decrease in capitalized loan origination costs. Year-to-date, total non-interest expense was $278.3 million, compared to $288.3 million in the same period a year earlier. Banner’s efficiency ratio was 58.65% for the second quarter, compared to 58.94% in the preceding quarter and 65.70% in same quarter a year ago. Banner’s adjusted efficiency ratio* was 57.04% for the second quarter, compared to 59.46% in the preceding quarter and 59.65% in the year ago quarter.
For the third quarter of 2022, Banner had $11.8 million in state and federal income tax expense for an effective tax rate of 19.4%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.6%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.
* Non-GAAP measure; see the discussion and reconciliation of Non-GAAP Financial Measures beginning on page 16.
Balance Sheet Review
Total assets decreased slightly to $16.36 billion at September 30, 2022, compared to $16.39 billion at June 30, 2022, and decreased 2% when compared to $16.64 billion at September 30, 2021. The total of securities and interest-bearing deposits held at other banks was $5.01 billion at September 30, 2022, compared to $5.45 billion at June 30, 2022 and $6.03 billion at September 30, 2021. The average effective duration of Banner's securities portfolio was approximately 6.4 years at September 30, 2022, compared to 4.4 years at September 30, 2021.
Total loans receivable increased to $9.83 billion at September 30, 2022, compared to $9.46 billion at June 30, 2022, and $9.22 billion at September 30, 2021. Excluding SBA PPP loans, total loans receivable increased $387.9 million from the preceding quarter and increased $905.5 million from the third quarter a year ago. SBA PPP loans decreased 57% to $13.4 million at September 30, 2022, compared to $31.0 million at June 30, 2022, and decreased 96% when compared to $310.2 million at September 30, 2021. One- to four-family residential loans increased to $1.03 billion at September 30, 2022, compared to $868.2 million at June 30, 2022, and $656.0 million a year ago. The increase in one- to four-family residential loans from the preceding quarter was primarily the result of new production and one- to four-family construction loans converting to one- to four-family portfolio loans as they matured during the third quarter of 2022. Multifamily real estate loans increased 3% to $592.8 million at September 30, 2022, compared to $575.2 million at June 30, 2022, and increased 19% compared to $497.5 million a year ago. Commercial real estate loans decreased slightly to $3.66 billion at September 30, 2022, compared to $3.67 billion at June 30, 2022 and decreased 3% when compared to $3.78 billion at September 30, 2021. Commercial business loans increased 4% to $2.15 billion at September 30, 2022, compared to $2.07 billion at June 30, 2022, and increased 1% compared to $2.12 billion a year ago. Excluding SBA PPP loans, commercial business loans increased 5% to $2.14 billion at September 30, 2022, compared to $2.04 billion at June 30, 2022, and increased 18% compared to $1.81 billion a year ago. Agricultural business loans increased to $299.4 million at September 30, 2022, compared to $283.4 million at June 30, 2022, and increased from $281.1 million a year ago. Total construction, land and land development loans were $1.44 billion at September 30, 2022, a 3% increase from $1.40 billion at June 30, 2022, and a 9% increase from $1.33 billion at September 30, 2021. Consumer loans increased to $662.2 million at September 30, 2022, compared to $595.6 million at June 30, 2022, and increased from $561.2 million a year ago. The increase in consumer loans was partially due to the purchase of a $25.6 million pool of consumer marine loans during the current quarter.
Loans held for sale were $84.4 million at September 30, 2022, compared to $69.2 million at June 30, 2022, and $63.7 million at September 30, 2021. The volume of one- to four- family residential mortgage loans sold was $49.7 million in the current quarter, compared to $88.6 million in the preceding quarter and $232.2 million in the third quarter a year ago. Banner sold $10.5 million of multifamily loans during the third quarter of 2022, compared to none in the preceding quarter and $96.1 million in the third quarter a year ago.
Total deposits increased slightly to $14.23 billion at September 30, 2022, compared to $14.21 billion at June 30, 2022, and $14.16 billion a year ago. Non-interest-bearing account balances increased 2% to $6.51 billion at September 30, 2022, compared to $6.39 billion at June 30, 2022, and increased 2% compared to $6.40 billion a year ago. Core deposits were 95% of total deposits at both September 30, 2022 and June 30, 2022 and were 94% of total deposits at September 30, 2021. Certificates of deposit decreased to $721.9 million at September 30, 2022, compared to $756.3 million at June 30, 2022, and decreased 15% compared to $851.1 million a year earlier. Banner had no FHLB borrowings at both September 30, 2022 and June 30, 2022, compared to $50.0 million a year ago.
At September 30, 2022, total common shareholders’ equity was $1.41 billion, or 8.61% of assets, compared to $1.49 billion or 9.07% of assets at June 30, 2022, and $1.67 billion or 10.02% of assets a year ago. The decrease in total common shareholders’ equity during the current quarter was primarily due to a $113.3 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. The decrease from the prior year, reflects a $384.1 million decrease in accumulated other comprehensive income and also includes the repurchase of 200,000 shares of common stock in the second quarter of 2022 at an average cost of $54.80 per share. At September 30, 2022, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.02 billion, or 6.41% of tangible assets*, compared to $1.10 billion, or 6.88% of tangible assets, at June 30, 2022, and $1.28 billion, or 7.86% of tangible assets, a year ago. Banner’s tangible book value per share* decreased to $29.97 at September 30, 2022, compared to $32.20 at June 30, 2022, and $37.30 per share a year ago.
Banner and Banner Bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At September 30, 2022, Banner's common equity Tier 1 capital ratio was 11.27%, its Tier 1 leverage capital to average assets ratio was 9.06%, and its total capital to risk-weighted assets ratio was 13.85%.
* Non-GAAP measure; see the discussion and reconciliation of Non-GAAP Financial Measures beginning on page 16.
Credit Quality
The allowance for credit losses - loans was $135.9 million at September 30, 2022, or 1.38% of total loans receivable and 895% of non-performing loans, compared to $128.7 million at June 30, 2022, or 1.36% of total loans receivable and 688% of non-performing loans, and $139.9 million at September 30, 2021, or 1.52% of total loans receivable and 485% of non-performing loans. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments, which was $14.0 million at September 30, 2022, compared to $14.2 million at June 30, 2022 and $10.1 million at September 30, 2021. Net loan recoveries totaled $869,000 in the third quarter of 2022, compared to $87,000 in the preceding quarter and $756,000 in the third quarter a year ago. Non-performing loans were $15.2 million at September 30, 2022, compared to $18.7 million at June 30, 2022, and $28.9 million a year ago.
Banner’s total substandard loans were $136.4 million at September 30, 2022, compared to $154.5 million at June 30, 2022, and $225.8 million a year ago. The quarter over quarter decrease primarily reflects risk rating upgrades.
Banner’s total non-performing assets were $15.6 million, or 0.10% of total assets, at September 30, 2022, compared to $19.1 million, or 0.12% of total assets, at June 30, 2022, and $29.7 million, or 0.18% of total assets, a year ago.
Conference Call
Banner will host a conference call on Thursday October 20, 2022, 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 (844) 200-6205 using access code 664717 to participate in the call. A replay will be available for one week at (866) 813-9403 using access code 067235 or at www.bannerbank.com.
About the Company
Banner Corporation is a $16.36 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.
Forward-Looking Statements
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner’s operating and stock price performance.
Factors that could cause Banner’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: (1) potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as increasing oil prices and supply chain disruptions, and any governmental or societal responses to the COVID-19 pandemic, including the possibility of new COVID-19 variants; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (4) competitive pressures among depository institutions; (5) the effect of inflation on interest rate movements and their impact on client behavior and net interest margin; (6) uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the transition away from LIBOR toward new interest rate benchmarks; (7) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (10) the ability to access cost-effective funding; (11) disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, information technology systems or on the third-party vendors who perform critical processing functions; (12) changes in financial markets; (13) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular, including the risk of inflation; (14) the costs, effects and outcomes of litigation; (15) legislation or regulatory changes, including but not limited to changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (16) changes in accounting principles, policies or guidelines; (17) future acquisitions by Banner of other depository institutions or lines of business; (18) future goodwill impairment due to changes in Banner’s business, changes in market conditions;(19) the costs associated with Banner Forward and (20) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and (21) other risks detailed from time to time in Banner’s filings with the Securities and Exchange Commission including Banner’s Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
RESULTS OF OPERATIONS Quarters Ended Nine Months Ended (in thousands except shares and per share data) Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 INTEREST INCOME: Loans receivable $ 116,610 $ 104,506 $ 116,487 $ 321,466 $ 340,802 Mortgage-backed securities 17,558 16,819 11,695 48,486 32,503 Securities and cash equivalents 16,951 11,676 7,686 37,059 20,649 151,119 133,001 135,868 407,011 393,954 INTEREST EXPENSE: Deposits 2,407 2,008 2,749 6,501 9,386 Federal Home Loan Bank advances — — 655 291 2,244 Other borrowings 81 80 125 245 358 Subordinated debt 2,188 1,902 2,193 5,866 6,605 4,676 3,990 5,722 12,903 18,593 Net interest income 146,443 129,011 130,146 394,108 375,361 PROVISION (RECAPTURE) FOR CREDIT LOSSES 6,087 4,534 (8,638 ) 3,660 (28,145 ) Net interest income after provision (recapture) for credit losses 140,356 124,477 138,784 390,448 403,506 NON-INTEREST INCOME: Deposit fees and other service charges 11,449 11,000 10,457 33,638 29,154 Mortgage banking operations 105 3,978 9,613 8,523 28,305 Bank-owned life insurance 1,804 2,239 1,245 5,674 3,797 Miscellaneous 1,689 2,051 2,185 5,423 8,173 15,047 19,268 23,500 53,258 69,429 Net gain on sale of securities 6 32 56 473 618 Net change in valuation of financial instruments carried at fair value 532 69 1,778 650 1,895 Gain on sale of branches, including related deposits — 7,804 — 7,804 — Total non-interest income 15,585 27,173 25,334 62,185 71,942 NON-INTEREST EXPENSE: Salary and employee benefits 61,639 60,832 59,799 181,957 186,553 Less capitalized loan origination costs (5,984 ) (7,222 ) (8,290 ) (19,436 ) (26,754 ) Occupancy and equipment 12,008 13,284 13,153 38,512 38,965 Information / computer data services 6,803 5,997 6,110 19,451 17,915 Payment and card processing services 5,508 5,682 6,181 16,086 15,482 Professional and legal expenses 2,619 2,878 12,324 7,677 20,023 Advertising and marketing 1,326 822 1,521 2,609 3,965 Deposit insurance 1,946 1,440 1,469 4,910 4,243 State/municipal business and use taxes 1,223 1,004 1,219 3,389 3,367 Real estate operations 68 (121 ) 53 (132 ) (71 ) Amortization of core deposit intangibles 1,215 1,425 1,575 4,064 4,997 Loss on extinguishment of debt — — — 793 — Miscellaneous 6,663 6,032 6,977 18,402 18,642 95,034 92,053 102,091 278,282 287,327 COVID-19 expenses — — 44 — 309 Merger and acquisition-related expenses — — 10 — 660 Total non-interest expense 95,034 92,053 102,145 278,282 288,296 Income before provision for income taxes 60,907 59,597 61,973 174,351 187,152 PROVISION FOR INCOME TAXES 11,837 11,632 12,089 33,353 36,031 NET INCOME $ 49,070 $ 47,965 $ 49,884 $ 140,998 $ 151,121 Earnings per common share: Basic $ 1.43 $ 1.40 $ 1.45 $ 4.11 $ 4.35 Diluted $ 1.43 $ 1.39 $ 1.44 $ 4.09 $ 4.32 Cumulative dividends declared per common share $ 0.44 $ 0.44 $ 0.41 $ 1.32 $ 1.23 Weighted average number of common shares outstanding: Basic 34,224,640 34,307,001 34,446,510 34,277,182 34,716,914 Diluted 34,416,017 34,451,740 34,669,492 34,499,246 35,012,228 Increase (decrease) in common shares outstanding 429 (181,454 ) (298,897 ) (60,873 ) (907,209 ) FINANCIAL CONDITION Percentage Change (in thousands except shares and per share data) Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Prior Qtr Prior Yr Qtr ASSETS Cash and due from banks $ 273,052 $ 294,717 $ 358,461 $ 392,035 (7.4) % (30.4) % Interest-bearing deposits 548,869 876,130 1,775,839 1,808,547 (37.4) % (69.7) % Total cash and cash equivalents 821,921 1,170,847 2,134,300 2,200,582 (29.8) % (62.6) % Securities - trading 28,383 27,886 26,981 26,875 1.8 % 5.6 % Securities - available for sale 2,996,173 3,094,422 3,638,993 3,446,575 (3.2) % (13.1) % Securities - held to maturity 1,132,852 1,151,765 520,922 447,708 (1.6) % 153.0 % Total securities 4,157,408 4,274,073 4,186,896 3,921,158 (2.7) % 6.0 % Federal Home Loan Bank stock 10,000 10,000 12,000 12,000 — % (16.7) % Securities purchased under agreements to resell 300,000 300,000 300,000 300,000 — % — % Loans held for sale 84,358 69,161 96,487 63,678 22.0 % 32.5 % Loans receivable 9,827,096 9,456,829 9,084,763 9,218,384 3.9 % 6.6 % Allowance for credit losses - loans (135,918 ) (128,702 ) (132,099 ) (139,915 ) 5.6 % (2.9) % Net loans receivable 9,691,178 9,328,127 8,952,664 9,078,469 3.9 % 6.7 % Accrued interest receivable 50,689 45,408 42,916 43,644 11.6 % 16.1 % Real estate owned (REO) held for sale, net 340 340 852 852 — % (60.1) % Property and equipment, net 141,280 141,114 148,759 151,503 0.1 % (6.7) % Goodwill 373,121 373,121 373,121 373,121 — % — % Other intangibles, net 10,655 11,870 14,855 16,429 (10.2) % (35.1) % Bank-owned life insurance 295,443 293,631 244,156 192,950 0.6 % 53.1 % Operating lease right-of-use assets 51,908 49,792 55,257 58,523 4.2 % (11.3) % Other assets 372,508 317,713 242,609 224,970 17.2 % 65.6 % Total assets $ 16,360,809 $ 16,385,197 $ 16,804,872 $ 16,637,879 (0.1) % (1.7) % LIABILITIES Deposits: Non-interest-bearing $ 6,507,523 $ 6,388,815 $ 6,385,177 $ 6,400,864 1.9 % 1.7 % Interest-bearing transaction and savings accounts 7,004,799 7,067,437 7,103,125 6,912,759 (0.9) % 1.3 % Interest-bearing certificates 721,944 756,312 838,631 851,054 (4.5) % (15.2) % Total deposits 14,234,266 14,212,564 14,326,933 14,164,677 0.2 % 0.5 % Advances from Federal Home Loan Bank (FHLB) — — 50,000 50,000 — % (100.0) % Other borrowings 234,006 234,737 264,490 247,358 (0.3) % (5.4) % Subordinated notes, net 98,849 98,752 98,564 98,472 0.1 % 0.4 % Junior subordinated debentures at fair value 73,841 72,229 119,815 124,853 2.2 % (40.9) % Operating lease liabilities 58,031 55,746 59,756 62,946 4.1 % (7.8) % Accrued expenses and other liabilities 209,226 180,999 148,303 175,960 15.6 % 18.9 % Deferred compensation 43,931 44,340 46,684 46,494 (0.9) % (5.5) % Total liabilities 14,952,150 14,899,367 15,114,545 14,970,760 0.4 % (0.1) % SHAREHOLDERS’ EQUITY Common stock 1,291,741 1,289,499 1,299,381 1,297,145 0.2 % (0.4) % Retained earnings 486,108 452,246 390,762 355,035 7.5 % 36.9 % Accumulated other comprehensive (loss) income (369,190 ) (255,915 ) 184 14,939 44.3 % (2,571.3) % Total shareholders’ equity 1,408,659 1,485,830 1,690,327 1,667,119 (5.2) % (15.5) % Total liabilities and shareholders’ equity $ 16,360,809 $ 16,385,197 $ 16,804,872 $ 16,637,879 (0.1) % (1.7) % Common Shares Issued: Shares outstanding at end of period 34,191,759 34,191,330 34,252,632 34,251,991 Common shareholders’ equity per share(1) $ 41.20 $ 43.46 $ 49.35 $ 48.67 Common shareholders’ tangible equity per share(1) (2) $ 29.97 $ 32.20 $ 38.02 $ 37.30 Common shareholders’ tangible equity to tangible assets(2) 6.41 % 6.88 % 7.93 % 7.86 % Consolidated Tier 1 leverage capital ratio 9.06 % 8.74 % 8.76 % 8.79 % (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) Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Prior Qtr Prior Yr Qtr Commercial real estate (CRE): Owner-occupied $ 862,792 $ 845,184 $ 831,623 $ 823,477 2.1 % 4.8 % Investment properties 1,604,881 1,628,105 1,674,027 1,667,098 (1.4) % (3.7) % Small balance CRE 1,188,351 1,191,903 1,281,863 1,284,596 (0.3) % (7.5) % Multifamily real estate 592,834 575,183 530,885 497,517 3.1 % 19.2 % Construction, land and land development: Commercial construction 171,029 193,984 167,998 168,663 (11.8) % 1.4 % Multifamily construction 275,488 256,952 259,116 278,184 7.2 % (1.0) % One- to four-family construction 666,350 625,488 568,753 571,431 6.5 % 16.6 % Land and land development 329,459 320,041 313,454 308,164 2.9 % 6.9 % Commercial business: Commercial business 1,229,490 1,176,287 1,038,206 1,038,417 4.5 % 18.4 % SBA PPP 13,060 30,651 132,574 306,976 (57.4) % (95.7) % Small business scored 906,647 865,828 792,310 775,554 4.7 % 16.9 % Agricultural business, including secured by farmland: Agricultural business, including secured by farmland 299,056 283,059 279,224 277,850 5.7 % 7.6 % SBA PPP 344 356 1,354 3,214 (3.4) % (89.3) % One- to four-family residential 1,025,143 868,175 657,474 656,011 18.1 % 56.3 % Consumer: Consumer—home equity revolving lines of credit 545,807 506,524 458,533 462,819 7.8 % 17.9 % Consumer—other 116,365 89,109 97,369 98,413 30.6 % 18.2 % Total loans receivable $ 9,827,096 $ 9,456,829 $ 9,084,763 $ 9,218,384 3.9 % 6.6 % Restructured loans performing under their restructured terms $ 4,352 $ 4,370 $ 5,309 $ 5,273 Loans 30 - 89 days past due and on accrual $ 15,208 $ 8,336 $ 11,558 $ 6,911 Total delinquent loans (including loans on non-accrual), net $ 21,728 $ 18,123 $ 18,688 $ 18,619 Total delinquent loans / Total loans receivable 0.22 % 0.19 % 0.21 % 0.20 % (1) December 31, 2021 and September 30, 2021 loan balances were reclassified to match current period presentation. LOANS BY GEOGRAPHIC LOCATION Percentage Change Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Prior Qtr Prior Yr Qtr Amount Percentage Amount Amount Amount Washington $ 4,648,124 47.3 % $ 4,436,092 $ 4,264,590 $ 4,319,008 4.8 % 7.6 % California 2,323,740 23.6 % 2,227,532 2,138,340 2,160,280 4.3 % 7.6 % Oregon 1,765,254 18.0 % 1,699,238 1,652,364 1,679,452 3.9 % 5.1 % Idaho 588,498 6.0 % 562,464 525,141 536,128 4.6 % 9.8 % Utah 95,250 1.0 % 94,508 74,913 89,620 0.8 % 6.3 % Other 406,230 4.1 % 436,995 429,415 433,896 (7.0) % (6.4) % Total loans receivable $ 9,827,096 100.0 % $ 9,456,829 $ 9,084,763 $ 9,218,384 3.9 % 6.6 % ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)LOAN ORIGINATIONS Quarters Ended Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Commercial real estate $ 92,062 $ 121,365 $ 174,827 Multifamily real estate 4,603 2,959 26,155 Construction and land 444,365 643,832 496,386 Commercial business: Commercial business 218,044 245,997 229,859 SBA PPP — — 907 Agricultural business 9,879 26,786 9,223 One-to four-family residential 92,701 126,963 49,594 Consumer 126,940 193,853 145,102 Total loan originations (excluding loans held for sale) $ 988,594 $ 1,361,755 $ 1,132,053 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Quarters Ended CHANGE IN THE Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 ALLOWANCE FOR CREDIT LOSSES – LOANS Balance, beginning of period $ 128,702 $ 125,471 $ 148,009 Provision (recapture) for credit losses – loans 6,347 3,144 (8,850 ) Recoveries of loans previously charged off: Commercial real estate 88 129 923 One- to four-family real estate 25 98 19 Commercial business 924 234 230 Agricultural business, including secured by farmland 252 14 17 Consumer 85 112 227 1,374 587 1,416 Loans charged off: Construction and land (25 ) — — Commercial business (138 ) (248 ) (362 ) Agricultural business, including secured by farmland (42 ) — (179 ) Consumer (300 ) (252 ) (119 ) (505 ) (500 ) (660 ) Net recoveries 869 87 756 Balance, end of period $ 135,918 $ 128,702 $ 139,915 Net recoveries / Average loans receivable 0.009 % 0.001 % 0.008 % ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES – LOANS Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Specific or allocated credit loss allowance: Commercial real estate $ 44,365 $ 46,373 $ 57,215 Multifamily real estate 7,114 6,906 6,657 Construction and land 27,985 26,939 29,342 One- to four-family real estate 12,394 9,573 9,460 Commercial business 31,854 28,673 26,873 Agricultural business, including secured by farmland 3,455 3,002 3,177 Consumer 8,751 7,236 7,191 Total allowance for credit losses – loans $ 135,918 $ 128,702 $ 139,915 Allowance for credit losses - loans / Total loans receivable 1.38 % 1.36 % 1.52 % Allowance for credit losses - loans / Non-performing loans 895 % 688 % 485 % Quarters Ended CHANGE IN THE Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Balance, beginning of period $ 14,246 $ 12,860 $ 9,909 (Recapture) provision for credit losses - unfunded loan commitments (205 ) 1,386 218 Balance, end of period $ 14,041 $ 14,246 $ 10,127 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 NON-PERFORMING ASSETS Loans on non-accrual status: Secured by real estate: Commercial $ 6,997 $ 10,041 $ 14,159 $ 14,931 Construction and land 299 200 479 354 One- to four-family 2,381 2,002 2,711 3,182 Commercial business 1,462 1,521 2,156 2,700 Agricultural business, including secured by farmland 594 1,022 1,022 1,022 Consumer 1,779 1,874 1,754 1,850 13,512 16,660 22,281 24,039 Loans more than 90 days delinquent, still on accrual: Secured by real estate: Commercial — 899 — 3,955 One- to four-family 1,556 1,053 436 772 Commercial business 64 20 2 61 Consumer 61 83 117 34 1,681 2,055 555 4,822 Total non-performing loans 15,193 18,715 22,836 28,861 REO 340 340 852 852 Other repossessed assets 17 17 17 17 Total non-performing assets $ 15,550 $ 19,072 $ 23,705 $ 29,730 Total non-performing assets to total assets 0.10 % 0.12 % 0.14 % 0.18 % Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 LOANS BY CREDIT RISK RATING Pass $ 9,672,473 $ 9,274,655 $ 8,874,468 $ 8,956,604 Special Mention 18,251 27,711 11,932 36,001 Substandard 136,372 154,463 198,363 225,779 Total $ 9,827,096 $ 9,456,829 $ 9,084,763 $ 9,218,384 Quarters Ended Nine Months Ended REAL ESTATE OWNED Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Balance, beginning of period $ 340 $ 429 $ 763 $ 852 $ 816 Additions from loan foreclosures — — 89 — 512 Proceeds from dispositions of REO — (257 ) — (864 ) (783 ) Gain on sale of REO — 168 — 352 307 Balance, end of period $ 340 $ 340 $ 852 $ 340 $ 852 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) DEPOSIT COMPOSITION Percentage Change Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Prior Qtr Prior Yr Qtr Non-interest-bearing $ 6,507,523 $ 6,388,815 $ 6,385,177 $ 6,400,864 1.9 % 1.7 % Interest-bearing checking 1,856,244 1,859,582 1,947,414 1,799,657 (0.2) % 3.1 % Regular savings accounts 2,824,711 2,801,177 2,784,716 2,773,995 0.8 % 1.8 % Money market accounts 2,323,844 2,406,678 2,370,995 2,339,107 (3.4) % (0.7) % Total interest-bearing transaction and savings accounts 7,004,799 7,067,437 7,103,125 6,912,759 (0.9) % 1.3 % Total core deposits 13,512,322 13,456,252 13,488,302 13,313,623 0.4 % 1.5 % Interest-bearing certificates 721,944 756,312 838,631 851,054 (4.5) % (15.2) % Total deposits $ 14,234,266 $ 14,212,564 $ 14,326,933 $ 14,164,677 0.2 % 0.5 % GEOGRAPHIC CONCENTRATION OF DEPOSITS Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Percentage Change Amount Percentage Amount Amount Amount Prior Qtr Prior Yr Qtr Washington $ 7,845,755 55.2 % $ 7,820,321 $ 7,952,376 $ 7,877,919 0.3 % (0.4) % Oregon 3,148,520 22.1 % 3,123,110 3,067,054 3,030,109 0.8 % 3.9 % California 2,493,977 17.5 % 2,520,493 2,524,296 2,501,521 (1.1) % (0.3) % Idaho 746,014 5.2 % 748,640 783,207 755,128 (0.4) % (1.2) % Total deposits $ 14,234,266 100.0 % $ 14,212,564 $ 14,326,933 $ 14,164,677 0.2 % 0.5 % INCLUDED IN TOTAL DEPOSITS Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Public non-interest-bearing accounts $ 192,742 $ 220,694 $ 193,917 $ 193,414 Public interest-bearing transaction & savings accounts 172,567 179,930 159,957 161,407 Public interest-bearing certificates 33,787 37,415 39,961 40,851 Total public deposits $ 399,096 $ 438,039 $ 393,835 $ 395,672 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Actual Minimum to be categorized as "Adequately Capitalized" Minimum to be
categorized as
"Well Capitalized"REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2022 Amount Ratio Amount Ratio Amount Ratio Banner Corporation-consolidated: Total capital to risk-weighted assets $ 1,716,295 13.85 % $ 991,112 8.00 % $ 1,238,890 10.00 % Tier 1 capital to risk-weighted assets 1,482,138 11.96 % 743,334 6.00 % 743,334 6.00 % Tier 1 leverage capital to average assets 1,482,138 9.06 % 654,646 4.00 % n/a n/a Common equity tier 1 capital to risk-weighted assets 1,395,638 11.27 % 557,500 4.50 % n/a n/a Banner Bank: Total capital to risk-weighted assets 1,641,723 13.26 % 990,256 8.00 % 1,237,820 10.00 % Tier 1 capital to risk-weighted assets 1,507,566 12.18 % 742,692 6.00 % 990,256 8.00 % Tier 1 leverage capital to average assets 1,507,566 9.22 % 654,248 4.00 % 817,809 5.00 % Common equity tier 1 capital to risk-weighted assets 1,507,566 12.18 % 557,019 4.50 % 804,583 6.50 % ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) (rates / ratios annualized) ANALYSIS OF NET INTEREST SPREAD Quarters Ended Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3) Average Balance Interest and Dividends Yield / Cost(3) Interest-earning assets: Held for sale loans $ 68,608 $ 676 3.91 % $ 69,338 $ 655 3.79 % $ 114,938 $ 996 3.44 % Mortgage loans 7,841,018 94,581 4.79 % 7,565,894 85,408 4.53 % 7,245,962 83,803 4.59 % Commercial/agricultural loans 1,670,595 20,418 4.85 % 1,572,957 17,153 4.37 % 1,534,978 15,776 4.08 % SBA PPP loans 21,943 613 11.08 % 45,739 1,056 9.26 % 566,515 15,421 10.80 % Consumer and other loans 120,583 1,824 6.00 % 117,162 1,683 5.76 % 120,112 1,774 5.86 % Total loans(1) 9,722,747 118,112 4.82 % 9,371,090 105,955 4.54 % 9,582,505 117,770 4.88 % Mortgage-backed securities 3,183,837 17,704 2.21 % 3,170,915 16,965 2.15 % 2,560,027 11,820 1.83 % Other securities 1,671,305 13,578 3.22 % 1,626,204 10,326 2.55 % 1,491,035 7,873 2.09 % Interest-bearing deposits with banks 778,196 4,406 2.25 % 1,176,591 2,281 0.78 % 1,486,839 586 0.16 % FHLB stock 10,000 75 2.98 % 10,000 100 4.01 % 13,957 135 3.84 % Total investment securities 5,643,338 35,763 2.51 % 5,983,710 29,672 1.99 % 5,551,858 20,414 1.46 % Total interest-earning assets 15,366,085 153,875 3.97 % 15,354,800 135,627 3.54 % 15,134,363 138,184 3.62 % Non-interest-earning assets 1,100,313 1,282,649 1,301,383 Total assets $ 16,466,398 $ 16,637,449 $ 16,435,746 Deposits: Interest-bearing checking accounts $ 1,862,887 429 0.09 % $ 1,924,896 289 0.06 % $ 1,771,869 282 0.06 % Savings accounts 2,822,153 481 0.07 % 2,841,286 352 0.05 % 2,721,028 458 0.07 % Money market accounts 2,378,851 769 0.13 % 2,431,456 531 0.09 % 2,322,453 668 0.11 % Certificates of deposit 740,014 728 0.39 % 783,536 836 0.43 % 863,971 1,341 0.62 % Total interest-bearing deposits 7,803,905 2,407 0.12 % 7,981,174 2,008 0.10 % 7,679,321 2,749 0.14 % Non-interest-bearing deposits 6,458,749 — — % 6,456,432 — — % 6,275,634 — — % Total deposits 14,262,654 2,407 0.07 % 14,437,606 2,008 0.06 % 13,954,955 2,749 0.08 % Other interest-bearing liabilities: FHLB advances — — — % — — — % 98,370 655 2.64 % Other borrowings 242,658 81 0.13 % 252,085 80 0.13 % 252,720 125 0.20 % Junior subordinated debentures and subordinated notes 189,178 2,188 4.59 % 189,178 1,902 4.03 % 247,944 2,193 3.51 % Total borrowings 431,836 2,269 2.08 % 441,263 1,982 1.80 % 599,034 2,973 1.97 % Total funding liabilities 14,694,490 4,676 0.13 % 14,878,869 3,990 0.11 % 14,553,989 5,722 0.16 % Other non-interest-bearing liabilities(2) 257,058 239,676 202,918 Total liabilities 14,951,548 15,118,545 14,756,907 Shareholders’ equity 1,514,850 1,518,904 1,678,839 Total liabilities and shareholders’ equity $ 16,466,398 $ 16,637,449 $ 16,435,746 Net interest income/rate spread (tax equivalent) $ 149,199 3.84 % $ 131,637 3.43 % $ 132,462 3.46 % Net interest margin (tax equivalent) 3.85 % 3.44 % 3.47 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (2,756 ) (2,626 ) (2,316 ) Net interest income and margin, as reported $ 146,443 3.78 % $ 129,011 3.37 % $ 130,146 3.41 % Additional Key Financial Ratios: Return on average assets 1.18 % 1.16 % 1.20 % Return on average equity 12.85 % 12.67 % 11.79 % Average equity/average assets 9.20 % 9.13 % 10.21 % Average interest-earning assets/average interest-bearing liabilities 186.58 % 182.31 % 182.82 % Average interest-earning assets/average funding liabilities 104.57 % 103.20 % 103.99 % Non-interest income/average assets 0.38 % 0.66 % 0.61 % Non-interest expense/average assets 2.29 % 2.22 % 2.47 % Efficiency ratio(4) 58.65 % 58.94 % 65.70 % Adjusted efficiency ratio(5) 57.04 % 59.46 % 59.65 % (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 $1.5 million, $1.4 million and $1.3 million for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.3 million, $1.2 million, and $1.0 million for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively. (4) Non-interest expense divided by the total of net interest income and non-interest income. (5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the discussion and reconciliation of Non-GAAP Financial Measures beginning on page 16. ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) (rates / ratios annualized) ANALYSIS OF NET INTEREST SPREAD Nine Months Ended Sep 30, 2022 Sep 30, 2021 Average Balance Interest and Dividends Yield/Cost(3) Average Balance Interest and Dividends Yield/Cost(3) Interest-earning assets: Held for sale loans $ 94,289 $ 2,446 3.47 % $ 101,380 $ 2,465 3.25 % Mortgage loans 7,581,540 261,021 4.60 % 7,179,859 245,056 4.56 % Commercial/agricultural loans 1,574,957 52,582 4.46 % 1,511,723 47,513 4.20 % SBA PPP loans 51,890 4,453 11.47 % 958,848 44,009 6.14 % Consumer and other loans 117,892 5,207 5.91 % 123,483 5,549 6.01 % Total loans(1) 9,420,568 325,709 4.62 % 9,875,293 344,592 4.67 % Mortgage-backed securities 3,110,769 48,904 2.10 % 2,320,474 32,855 1.89 % Other securities 1,624,138 32,333 2.66 % 1,265,056 21,648 2.29 % Equity securities — — — % 574 — — % Interest-bearing deposits with banks 1,214,076 7,507 0.83 % 1,221,241 1,224 0.13 % FHLB stock 10,579 281 3.55 % 14,629 457 4.18 % Total investment securities 5,959,562 89,025 2.00 % 4,821,974 56,184 1.56 % Total interest-earning assets 15,380,130 414,734 3.61 % 14,697,267 400,776 3.65 % Non-interest-earning assets 1,250,719 1,255,512 Total assets $ 16,630,849 $ 15,952,779 Deposits: Interest-bearing checking accounts $ 1,915,184 991 0.07 % $ 1,714,920 899 0.07 % Savings accounts 2,826,757 1,187 0.06 % 2,611,046 1,433 0.07 % Money market accounts 2,400,267 1,806 0.10 % 2,284,904 2,111 0.12 % Certificates of deposit 782,548 2,517 0.43 % 888,502 4,943 0.74 % Total interest-bearing deposits 7,924,756 6,501 0.11 % 7,499,372 9,386 0.17 % Non-interest-bearing deposits 6,445,579 — — % 6,001,354 — — % Total deposits 14,370,335 6,501 0.06 % 13,500,726 9,386 0.09 % Other interest-bearing liabilities: FHLB advances 13,919 291 2.80 % 114,103 2,244 2.63 % Other borrowings 253,545 245 0.13 % 232,142 358 0.21 % Junior subordinated debentures and subordinated notes 190,103 5,866 4.13 % 247,944 6,605 3.56 % Total borrowings 457,567 6,402 1.87 % 594,189 9,207 2.07 % Total funding liabilities 14,827,902 12,903 0.12 % 14,094,915 18,593 0.18 % Other non-interest-bearing liabilities(2) 241,010 203,349 Total liabilities 15,068,912 14,298,264 Shareholders’ equity 1,561,937 1,654,515 Total liabilities and shareholders’ equity $ 16,630,849 $ 15,952,779 Net interest income/rate spread (tax equivalent) $ 401,831 3.49 % $ 382,183 3.47 % Net interest margin (tax equivalent) 3.49 % 3.48 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (7,723 ) (6,822 ) Net interest income and margin, as reported $ 394,108 3.43 % $ 375,361 3.41 % Additional Key Financial Ratios: Return on average assets 1.13 % 1.27 % Return on average equity 12.07 % 12.21 % Average equity/average assets 9.39 % 10.37 % Average interest-earning assets/average interest-bearing liabilities 183.48 % 181.59 % Average interest-earning assets/average funding liabilities 103.72 % 104.27 % Non-interest income/average assets 0.50 % 0.60 % Non-interest expense/average assets 2.24 % 2.42 % Efficiency ratio(4) 60.99 % 64.45 % Adjusted efficiency ratio(5) 59.39 % 60.39 % (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 $4.2 million and $3.8 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.5 million and $3.0 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. (4) Non-interest expense divided by the total of net interest income and non-interest income. (5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the discussion and reconciliation of Non-GAAP Financial Measures beginning on page 16. 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 (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments, net gain (loss) on the sale of securities and gain on sale of branches from the total of net interest income and total non-interest income) and the adjusted efficiency ratio (which excludes merger and acquisition-related expenses, COVID-19 expenses, Banner Forward expenses, amortization of core deposit intangibles, real estate owned operations, loss on extinguishment of debt and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP 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, 2022 Jun 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net interest income (GAAP) $ 146,443 $ 129,011 $ 130,146 $ 394,108 $ 375,361 Non-interest income (GAAP) 15,585 27,173 25,334 62,185 71,942 Total revenue (GAAP) 162,028 156,184 155,480 456,293 447,303 Exclude net gain on sale of securities (6 ) (32 ) (56 ) (473 ) (618 ) Exclude net change in valuation of financial instruments carried at fair value (532 ) (69 ) (1,778 ) (650 ) (1,895 ) Exclude gain on sale of branches — (7,804 ) — (7,804 ) — Adjusted revenue (non-GAAP) $ 161,490 $ 148,279 $ 153,646 $ 447,366 $ 444,790 ADJUSTED EARNINGS Quarters Ended Nine Months Ended Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net income (GAAP) $ 49,070 $ 47,965 $ 49,884 $ 140,998 $ 151,121 Exclude net gain on sale of securities (6 ) (32 ) (56 ) (473 ) (618 ) Exclude net change in valuation of financial instruments carried at fair value (532 ) (69 ) (1,778 ) (650 ) (1,895 ) Exclude merger and acquisition-related expenses — — 10 — 660 Exclude COVID-19 expenses — — 44 — 309 Exclude gain on sale of branches — (7,804 ) — (7,804 ) — Exclude Banner Forward expenses 411 1,579 7,592 4,455 10,447 Exclude loss on extinguishment of debt — — — 793 — Exclude related net tax expense (benefit) 31 1,518 (1,395 ) 883 (2,137 ) Total adjusted earnings (non-GAAP) $ 48,974 $ 43,157 $ 54,301 $ 138,202 $ 157,887 Diluted earnings per share (GAAP) $ 1.43 $ 1.39 $ 1.44 $ 4.09 $ 4.32 Diluted adjusted earnings per share (non-GAAP) $ 1.42 $ 1.25 $ 1.57 $ 4.01 $ 4.51 ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) ADJUSTED EFFICIENCY RATIO Quarters Ended Nine Months Ended Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Non-interest expense (GAAP) $ 95,034 $ 92,053 $ 102,145 $ 278,282 $ 288,296 Exclude merger and acquisition-related expenses — — (10 ) — (660 ) Exclude COVID-19 expenses — — (44 ) — (309 ) Exclude Banner Forward expenses (411 ) (1,579 ) (7,592 ) (4,455 ) (10,447 ) Exclude CDI amortization (1,215 ) (1,425 ) (1,575 ) (4,064 ) (4,997 ) Exclude state/municipal tax expense (1,223 ) (1,004 ) (1,219 ) (3,389 ) (3,367 ) Exclude REO operations (68 ) 121 (53 ) 132 71 Exclude loss on extinguishment of debt — — — (793 ) — Adjusted non-interest expense (non-GAAP) $ 92,117 $ 88,166 $ 91,652 $ 265,713 $ 268,587 Net interest income (GAAP) $ 146,443 $ 129,011 $ 130,146 $ 394,108 $ 375,361 Non-interest income (GAAP) 15,585 27,173 25,334 62,185 71,942 Total revenue (GAAP) 162,028 156,184 155,480 456,293 447,303 Exclude net gain on sale of securities (6 ) (32 ) (56 ) (473 ) (618 ) Exclude net change in valuation of financial instruments carried at fair value (532 ) (69 ) (1,778 ) (650 ) (1,895 ) Exclude gain on sale of branches — (7,804 ) — (7,804 ) — Adjusted revenue (non-GAAP) $ 161,490 $ 148,279 $ 153,646 $ 447,366 $ 444,790 Efficiency ratio (GAAP) 58.65 % 58.94 % 65.70 % 60.99 % 64.45 % Adjusted efficiency ratio (non-GAAP) 57.04 % 59.46 % 59.65 % 59.39 % 60.39 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS Sep 30, 2022 Jun 30, 2022 Dec 31, 2021 Sep 30, 2021 Shareholders’ equity (GAAP) $ 1,408,659 $ 1,485,830 $ 1,690,327 $ 1,667,119 Exclude goodwill and other intangible assets, net 383,776 384,991 387,976 389,550 Tangible common shareholders’ equity (non-GAAP) $ 1,024,883 $ 1,100,839 $ 1,302,351 $ 1,277,569 Total assets (GAAP) $ 16,360,809 $ 16,385,197 $ 16,804,872 $ 16,637,879 Exclude goodwill and other intangible assets, net 383,776 384,991 387,976 389,550 Total tangible assets (non-GAAP) $ 15,977,033 $ 16,000,206 $ 16,416,896 $ 16,248,329 Common shareholders’ equity to total assets (GAAP) 8.61 % 9.07 % 10.06 % 10.02 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 6.41 % 6.88 % 7.93 % 7.86 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE Tangible common shareholders’ equity (non-GAAP) $ 1,024,883 $ 1,100,839 $ 1,302,351 $ 1,277,569 Common shares outstanding at end of period 34,191,759 34,191,330 34,252,632 34,251,991 Common shareholders’ equity (book value) per share (GAAP) $ 41.20 $ 43.46 $ 49.35 $ 48.67 Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 29.97 $ 32.20 $ 38.02 $ 37.30 CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO PETER J. CONNER, CFO (509) 527-3636 
