GlobeNewswire Inc | Jul 22, 2020 04:00PM EDT

July 22, 2020

WALLA WALLA, Wash., July 22, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $23.5 million, or $0.67 per diluted share, for the second quarter 2020, compared to $16.9 million, or $0.47 per diluted share, in the preceding quarter and $39.7 million, or $1.14 per diluted share, in the second quarter of 2019. Banner's second quarter earnings reflect the continuing impact of the COVID-19 pandemic in all the western states that Banner operates. Second quarter of 2020 results also include $336,000 of acquisition-related expenses, compared to $1.1 million of acquisition-related expenses in the preceding quarter and $301,000 in the second quarter of 2019. In the first six months of 2020, net income was $40.4 million, or $1.14 per diluted share, compared to $73.0 million, or $2.09 per diluted share, in the first six months a year ago. The results for the first six months of 2020 include $1.5 million of acquisition-related expenses, compared to $2.4 million of acquisition-related expenses in the first six months of 2019.

Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable August 13, 2020, to common shareholders of record on August 4, 2020.

With strong loan and deposit growth, Banners core operating performance generated solid revenue growth with increases in both net interest income and non-interest income compared to both the preceding quarter and the same quarter last year. However; second quarter earnings were impacted by a number of items, including the anticipated impact of the COVID-19 pandemic on the economy, and subsequently, the increase in our allowance for credit losses, said Mark Grescovich, President and CEO. To provide support for our clients, we have made available several assistance programs. Banner has provided SBA paycheck protection funds totaling nearly $1.12 billion for 8,655 businesses and provided deferred payments or waived interest on 3,314 loans totaling $1.1 billion as of June30, 2020. We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events. I am very proud of our more than 2,100 colleagues that are working extremely hard to assist our clients and communities during these difficult times."

We have proactively downgraded certain modified loans and other loans we consider at risk due to the COVID-19 induced economic slowdown. As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $156.4 million with the addition of $29.5 million in credit loss provisions during the quarter ended June30, 2020, Grescovich added. "This provision compares to a $21.7 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the second quarter a year ago. The allowance for credit losses - loans was 1.52% of total loans and 418% of non-performing loans at the end of the second quarter of 2020."

At June30, 2020, Banner Corporation had $14.41 billion in assets, $10.13 billion in net loans and $12.02 billion in deposits. Banner operates 176 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

-- SBA Paycheck Protection Program.The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. As of June30, 2020, Banner had funded 8,655 applications totaling $1.12 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA has been extended to August 8, 2020. Banner is continuing to accept new PPP applications based on this extended deadline and is assisting small businesses with other borrowing options as they become available, including the Main Street Lending Program and other government sponsored lending programs, as appropriate. -- Loan Accommodations. Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or could be eligible for an additional deferral period for up to 90 days. In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months. Banner had deferred payment or waived interest on 3,314 loans totaling $1.1 billion through June30, 2020. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through June30, 2020 pursuant to applicable accounting and regulatory guidance. As of June 30, 2020, the deferral period had ended for approximately 62% of these loans. -- Allowance for Credit Losses - Loans.Banner recorded a provision for credit losses of $29.5 million for the second quarter of 2020, compared to a $21.7 million provision in the preceding quarter and a $2.0 million provision in the second quarter a year ago. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of June30, 2020 and March31, 2020, respectively. -- Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of our clients and our personnel. To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner's network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $2.2 million of related costs during the second quarter of 2020, compared to $239,000 of related costs in the first quarter of 2020. -- Capital Management.At June30, 2020, the tangible common shareholders' equity to tangible assets* ratio was 8.76% and Banners capital was well in excess of all regulatory requirements. On June30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. During the preceding quarter, prior to the COVID-19 pandemic outbreak, Banner repurchased 624,780 shares of its common stock. To preserve capital, Banner has discontinued any additional repurchase of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Second Quarter 2020 Highlights

-- Revenues increased to $147.3 million, compared to $138.4 million in the preceding quarter, and increased 6% when compared to $139.4 million in the second quarter a year ago. -- Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago. -- Net interest margin as reported was 3.84%, compared to 4.19% in the preceding quarter and 4.38% in the second quarter a year ago. -- Net interest margin on a tax equivalent basis was 3.90%, compared to 4.25% in the preceding quarter and 4.44% in the second quarter a year ago. -- Mortgage banking revenues increased 39% to $14.1 million, compared to $10.2 million in the preceding quarter, and increased 138% compared to $5.9 million in the second quarter a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates. -- Return on average assets was 0.68%, compared to 0.54% in the preceding quarter and 1.36% in the second quarter a year ago. -- Net loans receivable increased to $10.13 billion at June30, 2020, compared to $9.16 billion at March31, 2020, and increased 17% when compared to $8.65 billion at June30, 2019. -- Non-performing assets decreased to $39.9 million, or 0.28% of total assets, at June30, 2020, compared to $46.1 million, or 0.36% of total assets in the preceding quarter, and increased from $21.0 million, or 0.18% of total assets, at June30, 2019. -- Provision for credit losses - loans was $29.5 million, and the allowance for credit losses - loans was $156.4 million, or 1.52% of total loans receivable, as of June30, 2020, compared to $130.5 million, or 1.41% of total loans receivable as of March31, 2020 and $98.3 million or 1.12% of total loans receivable as of June30, 2019. -- A $905,000 recapture of provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $10.6 million as of June30, 2020, compared to $11.5 million as of March31, 2020. -- Core deposits increased 18% to $10.97 billion at June30, 2020, compared to $9.28 billion at March31, 2020, and increased 34% compared to $8.22 billion a year ago. Core deposits represented 91% of total deposits at June30, 2020. -- Common shareholders equity per share increased 1% to $46.22 at June30, 2020, compared to $45.63 at the preceding quarter end, and increased 5% from $43.99 a year ago. -- Tangible common shareholders' equity per share* increased 2% to $34.89 at June30, 2020, compared to $34.23 at the preceding quarter end, and increased 5% from $33.36 a year ago.

*Tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

Significant Recent Initiatives and Events

On June 30, 2020, Banner issued and sold in an underwritten offering the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. Banner intends to use the net proceeds of the offering for general corporate purposes, which may include providing capital to support its growth organically or through strategic acquisitions, repayment or redemption of outstanding indebtedness, the payment of dividends, financing investments and capital expenditures, repurchasing shares of its common stock, and for investments in the Banks as regulatory capital.

On November 1, 2019, Banner completed the acquisition of AltaPacific Bancorp (AltaPacific) and its wholly-owned subsidiary, AltaPacific Bank, of Santa Rosa, California. At closing, AltaPacific Bank had six branch locations, including one in Northern California and five in Southern California. Pursuant to the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.

The AltaPacific merger was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date. The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner. During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner's core systems and closure of overlapping branches.

Adoption of New Accounting Standard

In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). GAAP prior to ASU 2016-13 required an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 became effective for Banner on January 1, 2020. The adoption of ASU No. 2016-13 resulted in a $7.8 million increase to its allowance for credit losses - loans and a $7.0 million increase to its allowance for credit losses - unfunded loan commitments. The combined increases were recorded net of tax as an $11.2 million reduction to retained earnings as of the adoption date.

Income Statement Review

Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago.

Banner's net interest margin on a tax equivalent basis was 3.90% for the second quarter of 2020, a 35 basis-point decrease compared to 4.25% in the preceding quarter and a 54 basis-point decrease compared to 4.44% in the second quarter a year ago. As expected, the 150 basis-point decrease in the fed funds target rate that occurred in March 2020, the full effect of the lower interest rate environment combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposit liquidity impacted our net interest margin during the quarter, added Grescovich. Acquisition accounting adjustments added seven basis points to the net interest margin in the current quarter compared to ten basis points in the preceding quarter and seven basis points in the second quarter a year ago. The total purchase discount for acquired loans was $20.2 million at June30, 2020, compared to $22.2 million at March31, 2020, and $22.6 million at June30, 2019. In the first six months of the year, Banners net interest margin on a tax equivalent basis was 4.07% compared to 4.43% in the first six months of 2019.

Average interest-earning asset yields decreased 50 basis points to 4.19% in the second quarter compared to 4.69% for the preceding quarter and decreased 78 basis points compared to 4.97% in the second quarter a year ago. Average loan yields decreased 51 basis points to 4.57% compared to 5.08% in the preceding quarter and decreased 82 basis points compared to 5.39% in the second quarter a year ago. Loan discount accretion added eight basis points to loan yields in the second quarter of 2020, compared to 12 basis points in the preceding quarter and nine basis points in the second quarter a year ago. Deposit costs were 0.23% in the second quarter of 2020, a 12 basis-point decrease compared to the preceding quarter and a 16 basis-point decrease compared to the second quarter a year ago. The decrease in deposit costs during the current quarter compared to the preceding quarter was the result of recent decreases in market interest rates; however, changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates. The total cost of funds was 0.31% during the second quarter of 2020, a 15 basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the second quarter a year ago.

Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of June30, 2020 and March31, 2020, respectively.

Total non-interest income was $27.8 million in the second quarter of 2020, compared to $19.2 million in the preceding quarter and $22.7 million in the second quarter a year ago. Deposit fees and other service charges were $7.5 million in the second quarter of 2020, compared to $9.8 million in the preceding quarter and $14.0 million in the second quarter a year ago. The decrease in deposit fees and other service charges from the second quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, as well as pandemic related fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $14.1 million in the second quarter, compared to $10.2 million in the preceding quarter and $5.9 million in the second quarter of 2019. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans. The increases compared to the second quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans primarily due to increased refinance activity. Home purchase activity accounted for 42% of one- to four-family mortgage loan originations in the second quarter of 2020, compared to 54% in the prior quarter and 77% in the second quarter of 2019. In the first six months of 2020, total non-interest income increased 15% to $47.0 million, compared to $40.8 million in the first six months of 2019.

Banners second quarter 2020 results included a $2.2 million net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading as a result of the tightening of market spreads during the quarter, and a $93,000 net gain on the sale of securities. In the preceding quarter, results included a $4.6 million net loss for fair value adjustments and a $78,000 net gain on the sale of securities. In the second quarter a year ago, results included an $114,000 net loss for fair value adjustments and a $28,000 net loss on the sale of securities.

Banner's total revenue increased 6% to $147.3 million for the second quarter of 2020, compared to $138.4 million in the preceding quarter, and increased 6% compared to $139.4 million in the second quarter a year ago. Year-to-date, total revenues increased 4% to $285.7 million compared to $273.6 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $145.0 million in the second quarter of 2020, compared to $142.9 million in the preceding quarter and $139.5 million in the second quarter of 2019. In the first six months of the year, adjusted revenue* was $287.9 million, compared to $273.7 million in the first six months of 2019.

Total non-interest expense was $89.6 million in the second quarter of 2020, compared to $95.2 million in the preceding quarter and $86.7 million in the second quarter of 2019. The decrease in non-interest expense during the second quarter of 2020 reflects an increase in capitalized loan origination costs, primarily related to the origination of PPP loans during the current quarter. A reduction in acquisition-related expenses also contributed to the decrease compared to the prior quarter as acquisition-related expenses were $336,000 for the second quarter of 2020, compared to $1.1 million for the preceding quarter and $301,000 in the second quarter a year ago. The current quarter includes a $905,000 recapture of provision for credit losses - unfunded loan commitments compared to a $1.7 million provision for the prior quarter and no provision for the year ago quarter. The previously mentioned increase in COVID-19 expenses during the current quarter partially offset these decreases. Year-to-date, total non-interest expense was $184.8 million, compared to $176.7 million in the same period a year earlier. Banners efficiency ratio was 60.85% for the current quarter, compared to 68.76% in the preceding quarter and 62.22% in the year ago quarter. Banners adjusted efficiency ratio* was 57.95% for the current quarter, compared to 63.47% in the preceding quarter and 59.56% in the year ago quarter.

For the second quarter of 2020, Banner had $4.6 million in state and federal income tax expense for an effective tax rate of 16.3%, reflecting the benefits from tax exempt income. Banners statutory income tax rate is 23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased 13% to $14.41 billion at June30, 2020, compared to $12.78 billion at March31, 2020, and increased 22% when compared to $11.85 billion at June30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.30 billion at June30, 2020, compared to $2.15 billion at March31, 2020 and $1.85 billion at June30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at June30, 2020, compared to 2.6 years at June30, 2019.

Net loans receivable increased 11% to $10.13 billion at June30, 2020, compared to $9.16 billion at March31, 2020, and increased 17% when compared to $8.65 billion at June30, 2019. The increase in net loans compared to the prior quarter primarily reflects the origination of SBA PPP loans during the current quarter, which totaled $1.12 billion outstanding as of June30, 2020. The year-over-year increase in net loans included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019. Commercial real estate and multifamily real estate loans increased to $4.11 billion at June30, 2020, compared to $4.02 billion at March31, 2020, and increased 13% compared to $3.62 billion a year ago. Commercial business loans increased 46% to $3.15 billion at June30, 2020, compared to $2.17 billion at March31, 2020, and increased 56% compared to $2.02 billion a year ago. Agricultural business loans decreased to $328.1 million at June30, 2020, compared to $330.3 million three months earlier and $345.8 million a year ago. Total construction, land and land development loans were $1.24 billion at June30, 2020, a small increase from $1.22 billion at March31, 2020, and a 9% increase compared to $1.14 billion a year earlier. Consumer loans decreased to $642.4 million at June30, 2020, compared to $661.8 million at March31, 2020, and $698.3 million a year ago. One- to four-family loans decreased to $817.8 million at June30, 2020, compared to $881.4 million at March31, 2020, and $918.2 million a year ago.

Loans held for sale were $258.7 million at June30, 2020, compared to $182.4 million at March31, 2020, and $170.7 million at June30, 2019. The volume of one- to four- family residential mortgage loans sold was $292.4 million in the current quarter, compared to $204.0 million in the preceding quarter and $139.0 million in the second quarter a year ago. During the second quarter of 2020, Banner sold $3.1 million in multifamily loans compared to $119.7 million in the preceding quarter and none in the second quarter a year ago. The current quarter reflects a temporary disruption in the secondary market for multifamily loans as a results of the COVID-19 pandemic.

Total deposits increased 15% to $12.02 billion at June30, 2020, compared to $10.45 billion at March31, 2020, and increased 29% when compared to $9.29 billion a year ago. The increase in total deposits from the preceding quarter was due primarily to SBA PPP loan funds deposited into customer accounts and an increase in customer deposits accounts due changes in spending habits during the COVID-19 pandemic. The year-over-year increase in deposits included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019. Non-interest-bearing account balances increased 29% to $5.28 billion at June30, 2020, compared to $4.11 billion at March31, 2020, and increased 44% compared to $3.67 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 18% from the prior quarter and increased 34% compared to a year ago and represented 91% of total deposits at June30, 2020. Certificates of deposit decreased 11% to $1.04 billion at June30, 2020, compared to $1.17 billion at March31, 2020, and decreased slightly compared to $1.07 billion a year earlier. The decrease in certificates of deposit during the second quarter of 2020 primarily reflects the decrease in brokered deposits to $119.4 million at June30, 2020, compared to $251.0 million at March31, 2020 and $138.4 million a year ago. FHLB borrowings totaled $150.0 million at June30, 2020, compared to $247.0 million at March31, 2020, and $606.0 million a year earlier.

At June30, 2020, total common shareholders' equity was $1.63 billion, or 11.28% of assets, compared to $1.60 billion or 12.53% of assets at March31, 2020, and $1.52 billion or 12.84% of assets a year ago. At June30, 2020, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.23 billion, or 8.76% of tangible assets*, compared to $1.20 billion, or 9.70% of tangible assets, at March31, 2020, and $1.15 billion, or 10.05% of tangible assets, a year ago. Banner's tangible book value per share* increased to $34.89 at June30, 2020, compared to $33.36 per share a year ago.

Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as well-capitalized. At June30, 2020, Banner's common equity Tier 1 capital ratio was 10.66%, its Tier 1 leverage capital to average assets ratio was 9.83%, and its total capital to risk-weighted assets ratio was 14.14%.

Credit Quality

The allowance for credit losses - loans was $156.4 million at June30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, compared to $130.5 million at March31, 2020, or 1.41% of total loans receivable outstanding and 299% of non-performing loans, and $98.3 million at June30, 2019, or 1.12% of total loans receivable outstanding and 534% 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 $10.6 million at June30, 2020, compared to $11.5 million at March31, 2020 and $2.6 million at June30, 2019. Net loan charge-offs totaled $3.7 million in the second quarter of 2020, compared to net loan recoveries of $404,000 in the preceding quarter and $1.1 million of net charge-offs in the second quarter a year ago. Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses. Non-performing loans were $37.4 million at June30, 2020, compared to $43.7 million at March31, 2020, and $18.4 million a year ago. Real estate owned and other repossessed assets were $2.4 million at June30, 2020, compared to $2.4 million at March31, 2020, and $2.6 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date. At June30, 2020, the total purchase discount for acquired loans was $20.2 million.

Banner's total non-performing assets were $39.9 million, or 0.28% of total assets, at June30, 2020, compared to $46.1 million, or 0.36% of total assets, at March31, 2020, and $21.0 million, or 0.18% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, July 23, 2020, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10145372, or at www.bannerbank.com.

About the Company

Banner Corporation is a $14.41 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the SEC), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "may," believe, will, will likely result, are expected to, will continue, is anticipated, estimate, project, plans, "potential," or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner's operating and stock price performance.

The COVID-19, pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1)the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner's business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; and (16) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.

RESULTS OF Quarters Ended Six Months EndedOPERATIONS(in thousandsexcept shares and Jun 30, 2020 Mar 31, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019per share data) INTEREST INCOME: Loans receivable $ 115,173 $ 118,926 $ 117,007 $ 234,099 $ 232,462 Mortgage-backed 7,983 9,137 9,794 17,120 20,301 securitiesSecurities and cash 5,468 3,602 4,037 9,070 8,071 equivalents 128,624 131,665 130,838 260,289 260,834 INTEREST EXPENSE: Deposits 6,694 8,750 9,023 15,444 17,666 Federal Home Loan 984 2,064 3,370 3,048 6,846 Bank advancesOther borrowings 238 116 67 354 127 Junior subordinateddebentures and 1,251 1,477 1,683 2,728 3,396 subordinated notes 9,167 12,407 14,143 21,574 28,035 Net interest incomebefore provision 119,457 119,258 116,695 238,715 232,799 for credit lossesPROVISION FOR 29,528 21,748 2,000 51,276 4,000 CREDIT LOSSESNet interest income 89,929 97,510 114,695 187,439 228,799 NON-INTEREST INCOME:Deposit fees andother service 7,546 9,803 14,046 17,349 26,664 chargesMortgage banking 14,138 10,191 5,936 24,329 9,351 operationsBank-owned life 2,317 1,050 1,123 3,367 2,399 insuranceMiscellaneous 1,550 2,639 1,713 4,189 2,517 25,551 23,683 22,818 49,234 40,931 Net gain (loss) on 93 78 (28 ) 171 (27 )sale of securitiesNet change invaluation offinancial 2,199 (4,596 ) (114 ) (2,397 ) (103 )instruments carriedat fair valueTotal non-interest 27,843 19,165 22,676 47,008 40,801 incomeNON-INTEREST EXPENSE:Salary and employee 63,415 59,908 55,629 123,323 110,269 benefitsLess capitalizedloan origination (11,110 ) (5,806 ) (7,399 ) (16,916 ) (12,248 )costsOccupancy and 12,985 13,107 12,681 26,092 26,447 equipmentInformation /computer data 6,084 5,810 5,273 11,894 10,599 servicesPayment and card 3,851 4,240 4,041 8,091 8,025 processing servicesProfessional and 2,163 1,919 2,336 4,082 4,770 legal expensesAdvertising and 652 1,827 2,065 2,479 3,594 marketingDeposit insurance 1,705 1,635 1,418 3,340 2,836 expenseState/municipalbusiness and use 1,104 984 1,007 2,088 1,952 taxesReal estate 4 100 260 104 137 operationsAmortization ofcore deposit 2,002 2,001 2,053 4,003 4,105 intangibles(Recapture) /provision forcredit losses - (905 ) 1,722 ? 817 ? unfunded loancommitmentsMiscellaneous 5,199 6,357 7,051 11,556 13,795 87,149 93,804 86,415 180,953 174,281 COVID-19 expenses 2,152 239 ? 2,391 ? Acquisition-related 336 1,142 301 1,478 2,449 expensesTotal non-interest 89,637 95,185 86,716 184,822 176,730 expenseIncome beforeprovision for 28,135 21,490 50,655 49,625 92,870 income taxesPROVISION 4,594 4,608 10,955 9,202 19,824 FORINCOME TAXESNET INCOME $ 23,541 $ 16,882 $ 39,700 $ 40,423 $ 73,046 Earnings per shareavailable to common shareholders:Basic $ 0.67 $ 0.48 $ 1.14 $ 1.14 $ 2.09 Diluted $ 0.67 $ 0.47 $ 1.14 $ 1.14 $ 2.09 Cumulativedividends declared $ ? $ 0.41 $ 0.41 $ 0.41 $ 0.82 per common shareWeighted averagecommon shares outstanding:Basic 35,189,260 35,463,541 34,831,047 35,326,401 34,940,106 Diluted 35,283,690 35,640,463 34,882,359 35,545,086 35,028,881 Increase (decrease)in common shares 55,440 (649,117 ) (579,103 ) (593,677 ) (609,129 )outstanding

FINANCIALCONDITION Percentage Change(in thousands except Prior Priorshares and per share Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019 Qtr Yr Qtrdata) ASSETS Cash and due from $ 291,036 $ 211,013 $ 234,359 $ 187,043 37.9 % 55.6 %banksInterest-bearing 128,938 83,988 73,376 59,753 53.5 % 115.8 %depositsTotal cash and cash 419,974 295,001 307,735 246,796 42.4 % 70.2 %equivalentsSecurities - trading 23,239 21,040 25,636 25,741 10.5 % (9.7 ) %Securities - 1,706,781 1,608,224 1,551,557 1,561,009 6.1 % 9.3 %available for saleSecurities - held to 441,075 437,846 236,094 203,222 0.7 % 117.0 %maturityTotal securities 2,171,095 2,067,110 1,813,287 1,789,972 5.0 % 21.3 %Equity securities 340,052 ? ? ? nm nmFederal Home Loan 16,363 20,247 28,342 34,583 (19.2 ) (52.7 )Bank stock % %Loans held for sale 258,700 182,428 210,447 170,744 41.8 % 51.5 %Loans receivable 10,283,999 9,285,744 9,305,357 8,746,550 10.8 % 17.6 %Allowance for credit (156,352 ) (130,488 ) (100,559 ) (98,254 ) 19.8 % 59.1 %losses - loansNet loans receivable 10,127,647 9,155,256 9,204,798 8,648,296 10.6 % 17.1 %Accrued interest 48,806 40,732 37,962 40,238 19.8 % 21.3 %receivableReal estate owned 2,400 2,402 814 2,513 (0.1 ) (4.5 )held for sale, net % %Property and 173,360 175,235 178,008 171,233 (1.1 ) 1.2 %equipment, net %Goodwill 373,121 373,121 373,121 339,154 ? % 10.0 %Other intangibles, 25,155 27,157 29,158 28,595 (7.4 ) (12.0 )net % %Bank-owned life 190,468 193,140 192,088 178,922 (1.4 ) 6.5 %insurance %Other assets 258,466 249,121 228,271 196,328 3.8 % 31.7 %Total assets $ 14,405,607 $ 12,780,950 $ 12,604,031 $ 11,847,374 12.7 % 21.6 %LIABILITIES Deposits: Non-interest-bearing $ 5,281,559 $ 4,107,262 $ 3,945,000 $ 3,671,995 28.6 % 43.8 %Interest-bearingtransaction and 5,692,715 5,175,969 4,983,238 4,546,202 10.0 % 25.2 %savings accountsInterest-bearing 1,042,006 1,166,306 1,120,403 1,070,770 (10.7 ) (2.7 )certificates % %Total deposits 12,016,280 10,449,537 10,048,641 9,288,967 15.0 % 29.4 %Advances from ) )Federal Home Loan 150,000 247,000 450,000 606,000 (39.3 % (75.2 %BankCustomer repurchaseagreements and other 166,084 128,764 118,474 118,370 29.0 % 40.3 %borrowingsSubordinated notes, 98,140 ? ? ? nm nmnetJunior subordinated )debentures at fair 109,613 99,795 119,304 113,621 9.8 % (3.5 %valueAccrued expenses and 194,964 208,753 227,889 159,131 (6.6 ) 22.5 %other liabilities %Deferred 45,423 45,401 45,689 40,230 ? % 12.9 %compensationTotal liabilities 12,780,504 11,179,250 11,009,997 10,326,319 14.3 % 23.8 %SHAREHOLDERS' EQUITY Common stock 1,345,096 1,343,699 1,373,940 1,306,888 0.1 % 2.9 %Retained earnings 201,448 177,922 186,838 178,257 13.2 % 13.0 %Other components of 78,559 80,079 33,256 35,910 (1.9 ) 118.8 %shareholders' equity %Total shareholders' 1,625,103 1,601,700 1,594,034 1,521,055 1.5 % 6.8 %equityTotal liabilitiesand shareholders' $ 14,405,607 $ 12,780,950 $ 12,604,031 $ 11,847,374 12.7 % 21.6 %equityCommon Shares Issued:Shares outstanding 35,157,899 35,102,459 35,751,576 34,573,643 at end of periodCommon shareholders'equity per share ^ $ 46.22 $ 45.63 $ 44.59 $ 43.99 (1)Common shareholders'tangible equity per $ 34.89 $ 34.23 $ 33.33 $ 33.36 share ^(1) (2)Common shareholders'tangible equity to 8.76 % 9.70 % 9.77 % 10.05 % tangible assets ^(2)Consolidated Tier 1leverage capital 9.83 % 10.45 % 10.71 % 10.83 % ratio

(1 ) Calculation is based on number of common shares outstanding at the end of the period rather than weighted average sharesoutstanding. Common shareholders' tangible equity excludes goodwill and other intangible assets.Tangible assets exclude goodwill and other intangible(2 ) 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.

ADDITIONALFINANCIAL INFORMATION(dollars in thousands) PercentageChangeLOANS Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019 Prior Prior Qtr Yr Qtr Commercial real estate:Owner-occupied $ 1,027,399 $ 1,024,089 $ 980,021 $ 854,812 0.3 % 20.2 %Investment 2,017,789 2,007,537 2,024,988 1,832,054 0.5 % 10.1 %propertiesSmall balance 624,726 591,783 613,484 619,695 5.6 % 0.8 %CREMultifamily 437,201 400,206 388,388 316,274 9.2 % 38.2 %real estateConstruction,land and land development:Commercial 215,860 205,476 210,668 172,931 5.1 % 24.8 %constructionMultifamily 256,335 250,410 233,610 189,160 2.4 % 35.5 %constructionOne- tofour-family 528,966 534,956 544,308 502,897 (1.1 )% 5.2 %constructionLand and land 235,602 232,506 245,530 273,546 1.3 % (13.9 )%developmentCommercial business:Commercial 2,372,216 1,357,817 1,364,650 1,253,137 74.7 % 89.3 %businessSmall business 779,678 807,539 772,657 769,702 (3.5 )% 1.3 %scoredAgriculturalbusiness,including 328,077 330,257 337,271 345,817 (0.7 )% (5.1 )%secured byfarmlandOne- tofour-family 817,787 881,387 925,531 918,212 (7.2 )% (10.9 )%residentialConsumer: Consumer?homeequityrevolving 515,603 521,618 519,336 542,968 (1.2 )% (5.0 )%lines ofcreditConsumer?other 126,760 140,163 144,915 155,345 (9.6 )% (18.4 )%Total loans $ 10,283,999 $ 9,285,744 $ 9,305,357 $ 8,746,550 10.8 % 17.6 %receivableRestructuredloansperforming $ 6,391 $ 6,423 $ 6,466 $ 6,594 under theirrestructuredtermsLoans 30 - 89days past due $ 20,807 $ 39,974 $ 20,178 $ 17,923 and on accrualTotaldelinquentloans(including $ 36,269 $ 61,101 $ 38,322 $ 34,749 loans onnon-accrual),netTotaldelinquentloans/Total 0.35 % 0.66 % 0.41 % 0.40 % loansreceivable

LOANS BY PercentageGEOGRAPHIC ChangeLOCATION Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019 Prior Prior Qtr Yr Qtr Amount Percentage Amount Amount Amount Washington $ 4,787,550 46.5% $ 4,350,273 $ 4,364,764 $ 4,293,854 10.1 % 11.5 %California 2,359,703 22.9% 2,140,895 2,129,789 1,659,326 10.2 % 42.2 %Oregon 1,899,933 18.5% 1,664,652 1,650,704 1,628,102 14.1 % 16.7 %Idaho 592,515 5.8% 524,663 530,016 548,189 12.9 % 8.1 %Utah 67,929 0.7% 52,747 60,958 62,944 28.8 % 7.9 %Other 576,369 5.6% 552,514 569,126 554,135 4.3 % 4.0 %Totalloans $ 10,283,999 100.0% $ 9,285,744 $ 9,305,357 $ 8,746,550 10.8 % 17.6 %receivable

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending June30, 2020, March31, 2020, and June30, 2019.

LOAN ORIGINATIONS Quarters Ended Jun 30, 2020 Mar 31, 2020 Jun 30, 2019Commercial real estate $ 111,765 $ 76,359 $ 64,999 Multifamily real estate 6,384 10,171 19,834 Construction and land 290,955 369,613 368,224 Commercial business 1,318,438 199,873 266,768 Agricultural business 16,293 31,261 18,194 One-to four-family residential 24,537 31,041 23,363 Consumer 126,653 67,357 117,869 Total loan originations $ 1,895,025 $ 785,675 $ 879,251 (excluding loans held for sale)

ADDITIONAL FINANCIAL INFORMATION (dollars in thousands) Quarters EndedCHANGE IN THE Jun 30, Mar 31, Jun 30, 2020 2020 2019ALLOWANCE FOR CREDIT LOSSES - LOANS Balance, beginning of period $ 130,488 $ 100,559 $ 97,308 Beginning balance adjustment for ? 7,812 ? adoption of ASC 326Provision for credit losses - loans 29,524 21,713 2,000 Recoveries of loans previously charged off:Commercial real estate 54 167 149 Construction and land 105 ? 30 One- to four-family real estate 31 148 230 Commercial business 370 205 215 Agricultural business, including 22 1,750 35 secured by farmlandConsumer 60 96 223 642 2,366 882 Loans charged off: Commercial real estate ? (100 ) (393 )Multifamily real estate ? (66 ) ? Construction and land (100 ) ? ? One- to four-family real estate ? (64 ) ? Commercial business (3,553 ) (1,384 ) (802 )Agricultural business, including (62 ) ? (162 )secured by farmlandConsumer (587 ) (348 ) (579 ) (4,302 ) (1,962 ) (1,936 )Net (charge-offs)/recoveries (3,660 ) 404 (1,054 )Balance, end of period $ 156,352 $ 130,488 $ 98,254 Net (charge-offs)/recoveries / Average (0.036 ) 0.004 % (0.012 )loans receivable % %

ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES - LOANS Jun 30, Mar 31, Jun 30, 2020 2020 2019Specific or allocated credit loss allowance:Commercial real estate $ 53,166 $ 29,339 $ 26,730 Multifamily real estate 3,504 2,805 4,344 Construction and land 36,916 34,217 23,554 One- to four-family real estate 12,746 11,884 4,701 Commercial business 33,870 31,648 19,557 Agricultural business, including 4,517 4,513 3,691 secured by farmlandConsumer 11,633 16,082 8,452 Total allocated 156,352 130,488 91,029 Unallocated ? ? 7,225 Total allowance for credit losses - $ 156,352 $ 130,488 $ 98,254 loansAllowance for credit losses - loans / 1.52 % 1.41 % 1.12 %Total loans receivableAllowance for credit losses - loans / 418 % 299 % 534 %Non-performing loans

Quarters EndedCHANGE IN THE Jun 30, Mar 31, Jun 30, 2020 2020 2019ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTSBalance, beginning of period $ 11,460 $ 2,716 $ 2,599 Beginning balance adjustment for adoption ? 7,022 ? of ASC 326(Recapture) / provision for credit losses - (905 ) 1,722 ? unfunded loan commitmentsBalance, end of period $ 10,555 $ 11,460 $ 2,599

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands) Jun 30, Mar 31, Dec 31, Jun 30, 2020 2020 2019 2019NON-PERFORMING ASSETS Loans on non-accrual status: Secured by real estate: Commercial $ 10,845 $ 8,512 $ 5,952 $ 4,603 Multifamily ? ? 85 ? Construction and land 732 1,393 1,905 2,214 One- to four-family 2,942 3,045 3,410 2,665 Commercial business 18,486 25,027 23,015 2,983 Agricultural business, 433 495 661 1,359 including secured by farmlandConsumer 2,412 1,812 2,473 3,230 35,850 40,284 37,501 17,054 Loans more than 90 days delinquent, still on accrual:Secured by real estate: Commercial ? 24 89 ? Construction and land ? 1,407 332 262 One- to four-family 472 1,089 877 995 Commercial business 1 77 401 1 Agricultural business, 1,061 461 ? ? including secured by farmlandConsumer 36 320 398 97 1,570 3,378 2,097 1,355 Total non-performing loans 37,420 43,662 39,598 18,409 Real estate owned (REO) 2,400 2,402 814 2,513 Other repossessed assets 47 47 122 112 Total non-performing assets $ 39,867 $ 46,111 $ 40,534 $ 21,034 Total non-performing assetsto 0.28 % 0.36 % 0.32 % 0.18 %total assets

Quarters Ended Six Months EndedREAL ESTATE OWNED Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2020 2020 2019 2020 2019Balance, beginning of $ 2,402 $ 814 $ 2,611 $ 814 $ 2,611 periodAdditions from loan ? 1,588 61 1,588 61 foreclosuresProceeds from (98 ) ? (150 ) (98 ) (150 )dispositions of REOGain (loss) on sale of 96 ? (9 ) 96 (9 )REOBalance, end of period $ 2,400 $ 2,402 $ 2,513 $ 2,400 $ 2,513

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands) DEPOSIT COMPOSITION Percentage Change Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019 Prior Prior Qtr Yr Qtr Non-interest-bearing $ 5,281,559 $ 4,107,262 $ 3,945,000 $ 3,671,995 28.6 % 43.8 %Interest-bearing 1,399,593 1,331,860 1,280,003 1,187,035 5.1 % 17.9 %checkingRegular savings 2,197,790 1,997,265 1,934,041 1,848,048 10.0 % 18.9 %accountsMoney market 2,095,332 1,846,844 1,769,194 1,511,119 13.5 % 38.7 %accountsTotalinterest-bearing 5,692,715 5,175,969 4,983,238 4,546,202 10.0 % 25.2 %transaction andsavings accountsTotal core deposits 10,974,274 9,283,231 8,928,238 8,218,197 18.2 % 33.5 %Interest-bearing 1,042,006 1,166,306 1,120,403 1,070,770 (10.7 ) (2.7 )certificates % %Total deposits $ 12,016,280 $ 10,449,537 $ 10,048,641 $ 9,288,967 15.0 % 29.4 %

GEOGRAPHICCONCENTRATION OF DEPOSITS Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019 Percentage Change Amount Percentage Amount Amount Amount Prior Prior Qtr Yr QtrWashington $ 6,765,186 56.3 % $ 6,037,864 $ 5,861,809 $ 5,503,280 12.0 % 22.9 %Oregon 2,440,617 20.3 % 2,093,738 2,006,163 1,919,051 16.6 % 27.2 %California 2,224,477 18.5 % 1,828,064 1,698,289 1,399,137 21.7 % 59.0 %Idaho 586,000 4.9 % 489,871 482,380 467,499 19.6 % 25.3 %Total $ 12,016,280 100.0 % $ 10,449,537 $ 10,048,641 $ 9,288,967 15.0 % 29.4 %deposits

INCLUDED IN TOTAL Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019DEPOSITSPublicnon-interest-bearing $ 139,133 $ 115,354 $ 111,015 $ 102,348 accountsPublicinterest-bearing 136,039 130,958 133,403 121,262 transaction &savings accountsPublicinterest-bearing 56,609 48,232 35,184 28,656 certificatesTotal public $ 331,781 $ 294,544 $ 279,602 $ 252,266 depositsTotal brokered $ 119,399 $ 250,977 $ 202,884 $ 138,395 deposits

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands) Minimum tobe Minimum to be Actual categorized as categorized as "Adequately "Well Capitalized" Capitalized"REGULATORY CAPITAL RATIOS Amount Ratio Amount Ratio Amount RatioAS OF JUNE 30, 2020 Banner Corporation-consolidated:Total capital to $ 1,544,473 14.14 % $ 873,623 8.00 % $ 1,092,028 10.00 %risk-weighted assetsTier 1 capital to 1,307,925 11.98 % 655,217 6.00 % 655,217 6.00 %risk-weighted assetsTier 1 leverage capital 1,307,925 9.83 % 531,965 4.00 % n/a n/ato average assetsCommon equity tier 1capital to risk-weighted 1,164,425 10.66 % 491,413 4.50 % n/a n/aassetsBanner Bank: Total capital to 1,366,305 12.73 % 858,690 8.00 % 1,073,363 10.00 %risk-weighted assetsTier 1 capital to 1,232,095 11.48 % 644,018 6.00 % 858,690 8.00 %risk-weighted assetsTier 1 leverage capital 1,232,095 9.47 % 520,183 4.00 % 650,229 5.00 %to average assetsCommon equity tier 1capital to risk-weighted 1,232,095 11.48 % 483,013 4.50 % 697,686 6.50 %assetsIslanders Bank: Total capital to 28,579 15.08 % 15,164 8.00 % 18,955 10.00 %risk-weighted assetsTier 1 capital to 26,207 13.83 % 11,373 6.00 % 15,164 8.00 %risk-weighted assetsTier 1 leverage capital 26,207 8.62 % 12,160 4.00 % 15,200 5.00 %to average assetsCommon equity tier 1capital to risk-weighted 26,207 13.83 % 8,530 4.50 % 12,321 6.50 %assets

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands)(rates / ratios annualized) ANALYSIS OF NET Quarters EndedINTEREST SPREAD June 30, 2020 March 31, 2020 June 30, 2019 Average Interest Yield / Average Interest Yield / Average Interest Yield / Balance and Cost^(3) Balance and Cost^(3) Balance and Cost^(3) Dividends Dividends DividendsInterest-earning assets:Held for sale loans $ 152,636 $ 1,451 3.82 % $ 152,627 $ 1,520 4.01 % $ 47,663 $ 567 4.77 %Mortgage loans 7,314,125 87,172 4.79 % 7,310,115 93,061 5.12 % 6,800,802 90,258 5.32 %Commercial/ 2,599,878 25,200 3.90 % 1,884,006 22,959 4.90 % 1,769,603 24,466 5.55 %agricultural loansConsumer and other 152,438 2,361 6.23 % 163,098 2,595 6.40 % 179,693 2,834 6.33 %loansTotal loans^(1)(3) 10,219,077 116,184 4.57 % 9,509,846 120,135 5.08 % 8,797,761 118,125 5.39 %Mortgage-backed 1,286,223 8,083 2.53 % 1,354,585 9,236 2.74 % 1,354,048 9,794 2.90 %securitiesOther securities 787,957 5,859 2.99 % 458,116 3,310 2.91 % 448,721 3,663 3.27 %Interest-bearing 212,502 172 0.33 % 92,659 393 1.71 % 53,955 340 2.53 %deposits with banksFHLB stock 16,620 300 7.26 % 26,522 322 4.88 % 30,902 387 5.02 %Total investment 2,303,302 14,414 2.52 % 1,931,882 13,261 2.76 % 1,887,626 14,184 3.01 %securities ^(3)Totalinterest-earning 12,522,379 130,598 4.19 % 11,441,728 133,396 4.69 % 10,685,387 132,309 4.97 %assetsNon-interest-earning 1,359,975 1,193,256 1,048,811 assetsTotal assets $ 13,882,354 $ 12,634,984 $ 11,734,198 Deposits: Interest-bearing $ 1,376,710 374 0.11 % $ 1,266,647 469 0.15 % $ 1,177,534 564 0.19 %checking accountsSavings accounts 2,108,896 998 0.19 % 2,039,857 1,755 0.35 % 1,851,913 2,119 0.46 %Money market 1,979,419 1,565 0.32 % 1,743,118 2,439 0.56 % 1,497,717 2,656 0.71 %accountsCertificates of 1,117,547 3,757 1.35 % 1,124,994 4,087 1.46 % 1,105,844 3,684 1.34 %depositTotalinterest-bearing 6,582,572 6,694 0.41 % 6,174,616 8,750 0.57 % 5,633,008 9,023 0.64 %depositsNon-interest-bearing 4,902,992 ? ? % 3,965,380 ? ? % 3,652,096 ? ? %depositsTotal deposits 11,485,564 6,694 0.23 % 10,139,996 8,750 0.35 % 9,285,104 9,023 0.39 %Otherinterest-bearing liabilities:FHLB advances 156,374 984 2.53 % 405,429 2,064 2.05 % 514,703 3,370 2.63 %Other borrowings 285,735 238 0.34 % 124,771 116 0.37 % 122,455 67 0.22 %Junior subordinateddebentures and 149,043 1,251 3.38 % 147,944 1,477 4.02 % 140,212 1,683 4.81 %subordinated notesTotal borrowings 591,152 2,473 1.68 % 678,144 3,657 2.17 % 777,370 5,120 2.64 %Total funding 12,076,716 9,167 0.31 % 10,818,140 12,407 0.46 % 10,062,474 14,143 0.56 %liabilitiesOthernon-interest-bearing 188,369 212,162 151,436 liabilities^(2)Total liabilities 12,265,085 11,030,302 10,213,910 Shareholders' equity 1,617,269 1,604,682 1,520,288 Total liabilitiesand shareholders' $ 13,882,354 $ 12,634,984 $ 11,734,198 equityNet interest income/rate spread (tax $ 121,431 3.88 % $ 120,989 4.23 % $ 118,166 4.41 %equivalent)Net interest margin 3.90 % 4.25 % 4.44 %(tax equivalent)Reconciliation toreported net interest income:Adjustments fortaxable equivalent (1,974 ) (1,731 ) (1,471 ) basisNet interest incomeand margin, as $ 119,457 3.84 % $ 119,258 4.19 % $ 116,695 4.38 %reportedAdditional Key Financial Ratios:Return on average 0.68 % 0.54 % 1.36 %assetsReturn on average 5.85 % 4.23 % 10.47 %equityAverage equity/ 11.65 % 12.70 % 12.96 %average assetsAverageinterest-earningassets/average 174.56 % 166.97 % 166.69 %interest-bearingliabilitiesAverageinterest-earning 103.69 % 105.76 % 106.19 %assets/averagefunding liabilitiesNon-interest income/ 0.81 % 0.61 % 0.78 %average assetsNon-interest expense 2.60 % 3.03 % 2.96 %/average assetsEfficiency ratio^(4) 60.85 % 68.76 % 62.22 %Adjusted efficiency 57.95 % 63.47 % 59.56 %ratio^(5)

(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 $1.0 million, $1.2 million, and $1.1 million for the three months ended June 30, 2020, March31, 2020, and June30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $963,000, $522,000, and $353,000 for the three months ended June30, 2020, March31, 2020, and June30, 2019, respectively.(4)Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.(5)Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP reconciliation tables above under "Executive OverviewNon-GAAP Financial Measures."

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands)(rates / ratios annualized) ANALYSIS OF NET Six Months EndedINTEREST SPREAD June 30, 2020 June 30, 2019 Average Interest Yield/ Average Interest Yield/ Balance and Cost^(3) Balance and Cost^(3) Dividends DividendsInterest-earning assets:Held for sale loans $ 152,631 $ 2,971 3.91 % $ 72,694 $ 1,688 4.68 %Mortgage loans 7,312,120 180,233 4.96 % 6,817,276 179,320 5.30 %Commercial/ 2,241,942 48,159 4.32 % 1,736,735 47,767 5.55 %agricultural loansConsumer and other 157,768 4,956 6.32 % 181,562 5,754 6.39 %loansTotal loans^(1)(3) 9,864,461 236,319 4.82 % 8,808,267 234,529 5.37 %Mortgage-backed 1,320,404 17,319 2.64 % 1,372,978 20,301 2.98 %securitiesOther securities 623,036 9,169 2.96 % 466,330 7,516 3.25 %Interest-bearing 152,581 565 0.74 % 49,382 629 2.57 %deposits with banksFHLB stock 21,571 622 5.80 % 31,329 653 4.20 %Total investment 2,117,592 27,675 2.63 % 1,920,019 29,099 3.06 %securities^(3)Totalinterest-earning 11,982,053 263,994 4.43 % 10,728,286 263,628 4.96 %assetsNon-interest-earning 1,276,615 1,040,248 assetsTotal assets $ 13,258,668 $ 11,768,534 Deposits: Interest-bearing $ 1,321,679 843 0.13 % $ 1,165,807 1,039 0.18 %checking accountsSavings accounts 2,074,377 2,753 0.27 % 1,853,012 4,039 0.44 %Money market 1,861,268 4,004 0.43 % 1,494,042 4,907 0.66 %accountsCertificates of 1,121,270 7,844 1.41 % 1,179,320 7,681 1.31 %depositTotalinterest-bearing 6,378,594 15,444 0.49 % 5,692,181 17,666 0.63 %depositsNon-interest-bearing 4,434,186 ? ? % 3,629,136 ? ? %depositsTotal deposits 10,812,780 15,444 0.29 % 9,321,317 17,666 0.38 %Otherinterest-bearing liabilities:FHLB advances 280,901 3,048 2.18 % 524,417 6,846 2.63 %Other borrowings 205,253 354 0.35 % 120,243 127 0.21 %Junior subordinateddebentures and 148,494 2,728 3.69 % 140,212 3,396 4.88 %subordinated notesTotal borrowings 634,648 6,130 1.94 % 784,872 10,369 2.66 %Total funding 11,447,428 21,574 0.38 % 10,106,189 28,035 0.56 %liabilitiesOthernon-interest-bearing 200,265 151,685 liabilities^(2)Total liabilities 11,647,693 10,257,874 Shareholders' equity 1,610,975 1,510,660 Total liabilitiesand shareholders' $ 13,258,668 $ 11,768,534 equityNet interest income/rate spread (tax $ 242,420 4.05 % $ 235,593 4.40 %equivalent)Net interest margin 4.07 % 4.43 %(tax equivalent)Reconciliation toreported net interest income:Adjustments fortaxable equivalent (3,705 ) (2,794 ) basisNet interest incomeand margin, as $ 238,715 4.01 % $ 232,799 4.38 %reportedAdditional Key Financial Ratios:Return on average 0.61 % 1.25 %assetsReturn on average 5.05 % 9.75 %equityAverage equity/ 12.15 % 12.84 %average assetsAverageinterest-earningassets/average ' 170.85 % 165.64 %interest-bearingliabilitiesAverageinterest-earning 104.67 % 106.16 %assets/averagefunding liabilitiesNon-interest income/ 0.71 % 0.70 %average assetsNon-interest expense 2.80 % 3.03 %/average assetsEfficiency ratio^(4) 64.69 % 64.59 %Adjusted efficiency 60.69 % 61.41 %ratio^(5)

(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.2 million and $2.1 million for the six months ended June 30, 2020 and June30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and $727,000 for the six months ended June30, 2020 and June30, 2019, respectively.(4)Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.(5)Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP reconciliation tables above under "Executive OverviewNon-GAAP Financial Measures."

ADDITIONALFINANCIAL INFORMATION(dollars in thousands) * Non-GAAPFinancial MeasuresIn addition to results presented in accordance with generally acceptedaccounting principles in the United States of America (GAAP), this pressrelease contains certain non-GAAP financial measures. Management haspresented these non-GAAP financial measures in this earnings release because itbelieves that they provide useful and comparative information to assess trendsin Banner's core operations reflected in the current quarter's results andfacilitate the comparison of our performance with the performance of ourpeers. However, these non-GAAP financial measures are supplemental and arenot a substitute for any analysis based on GAAP. Where applicable, comparableearnings information using GAAP financial measures is also presented. Becausenot all companies use the same calculations, our presentation may not becomparable to other similarly titled measures as calculated by other companies.For a reconciliation of these non-GAAP financial measures, see the tablesbelow: ADJUSTED Quarters Ended Six Months EndedREVENUE Jun 30, 2020 Mar 31, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019Net interestincomebefore $ 119,457 $ 119,258 $ 116,695 $ 238,715 $ 232,799 provisionfor loanlossesTotalnon-interest 27,843 19,165 22,676 47,008 40,801 incomeTotal GAAP 147,300 138,423 139,371 285,723 273,600 revenueExclude netgain (loss) (93 ) (78 ) 28 (171 ) 27 on sale ofsecuritiesExclude netchange invaluation offinancial (2,199 ) 4,596 114 2,397 103 instrumentscarried atfair valueAdjustedrevenue $ 145,008 $ 142,941 $ 139,513 $ 287,949 $ 273,730 (non-GAAP)

ADJUSTED EARNINGS Quarters Ended Six Months Ended Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2020 2020 2019 2020 2019Net income (GAAP) $ 23,541 $ 16,882 $ 39,700 $ 40,423 $ 73,046 Exclude net gain(loss) on sale of (93 ) (78 ) 28 (171 ) 27 securitiesExclude net changein valuation offinancial (2,199 ) 4,596 114 2,397 103 instruments carriedat fair valueExcludeacquisition-related 336 1,142 301 1,478 2,449 expensesExclude COVID-19 2,152 239 ? 2,391 ? expensesExclude related net (47 ) (1,405 ) (106 ) (1,452 ) (619 )tax benefitTotal adjusted $ 23,690 $ 21,376 $ 40,037 $ 45,066 $ 75,006 earnings (non-GAAP) Diluted earnings $ 0.67 $ 0.47 $ 1.14 $ 1.14 $ 2.09 per share (GAAP)Diluted adjustedearnings per share $ 0.67 $ 0.60 $ 1.15 $ 1.27 $ 2.14 (non-GAAP)

ADDITIONALFINANCIAL INFORMATION(dollars in thousands)ADJUSTED EFFICIENCY Quarters Ended Six Months EndedRATIO Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2020 2020 2019 2020 2019Non-interest $ 89,637 $ 95,185 $ 86,716 $ 184,822 $ 176,730 expense (GAAP)Excludeacquisition-related (336 ) (1,142 ) (301 ) (1,478 ) (2,449 )expensesExclude COVID-19 (2,152 ) (239 ) ? (2,391 ) ? expensesExclude CDI (2,002 ) (2,001 ) (2,053 ) (4,003 ) (4,105 )amortizationExclude state/municipal tax (1,104 ) (984 ) (1,007 ) (2,088 ) (1,952 )expenseExclude REO (4 ) (100 ) (260 ) (104 ) (137 )operationsAdjustednon-interest $ 84,039 $ 90,719 $ 83,095 $ 174,758 $ 168,087 expense (non-GAAP) Net interest incomebefore provision $ 119,457 $ 119,258 $ 116,695 $ 238,715 $ 232,799 for loan losses(GAAP)Non-interest income 27,843 19,165 22,676 47,008 40,801 (GAAP)Total revenue 147,300 138,423 139,371 285,723 273,600 Exclude net gain(loss) on sale of (93 ) (78 ) 28 (171 ) 27 securitiesExclude net changein valuation offinancial (2,199 ) 4,596 114 2,397 103 instruments carriedat fair valueAdjusted revenue $ 145,008 $ 142,941 $ 139,513 $ 287,949 $ 273,730 (non-GAAP) Efficiency ratio 60.85 % 68.76 % 62.22 % 64.69 % 64.59 %(GAAP)Adjusted efficiency 57.95 % 63.47 % 59.56 % 60.69 % 61.41 %ratio (non-GAAP)

TANGIBLECOMMONSHAREHOLDERS' Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Jun 30, 2019EQUITY TOTANGIBLEASSETSShareholders' $ 1,625,103 $ 1,601,700 $ 1,594,034 $ 1,521,055 equity (GAAP)Excludegoodwill andother 398,276 400,278 402,279 367,749 intangibleassets, netTangiblecommonshareholders' $ 1,226,827 $ 1,201,422 $ 1,191,755 $ 1,153,306 equity(non-GAAP) Total assets $ 14,405,607 $ 12,780,950 $ 12,604,031 $ 11,847,374 (GAAP)Excludegoodwill andother 398,276 400,278 402,279 367,749 intangibleassets, netTotaltangible $ 14,007,331 $ 12,380,672 $ 12,201,752 $ 11,479,625 assets(non-GAAP)Commonshareholders'equity to 11.28 % 12.53 % 12.65 % 12.84 %total assets(GAAP)Tangiblecommonshareholders'equity to 8.76 % 9.70 % 9.77 % 10.05 %tangibleassets(non-GAAP) TANGIBLECOMMONSHAREHOLDERS' EQUITY PERSHARETangiblecommonshareholders' $ 1,226,827 $ 1,201,422 $ 1,191,755 $ 1,153,306 equity(non-GAAP)Common sharesoutstanding 35,157,899 35,102,459 35,751,576 34,573,643 at end ofperiodCommonshareholders'equity (book $ 46.22 $ 45.63 $ 44.59 $ 43.99 value) pershare (GAAP)Tangiblecommonshareholders'equity $ 34.89 $ 34.23 $ 33.33 $ 33.36 (tangiblebook value)per share(non-GAAP)

CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO PETER J. CONNER, CFO (509) 527-3636