Walla Walla, WA - January 20, 2022 - Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $49.9 million, or $1.44 per diluted share, for the fourth quarter of 2021, virtually unchanged from $49.9 million, or $1.44 per diluted share, for the third quarter of 2021 and compared to $39.0 million, or $1.10 per diluted share, for the fourth quarter of 2020.  Banner’s fourth quarter 2021 results include $5.2 million in recapture of provision for credit losses, compared to $8.6 million in recapture of provision for credit losses in the preceding quarter and $602,000 in provision for credit losses in the fourth quarter of 2020.  Net income for 2021 increased 73% to a record $201.0 million, or $5.76 per diluted share, compared to $115.9 million, or $3.26 per diluted share for 2020.  Full year 2021 results include $33.4 million in recapture of provision for credit losses, compared to $67.9 million in provision for credit losses in 2020.

Banner announced that its Board of Directors increased its regular quarterly cash dividend by 7% to $0.44 per share.  The dividend will be payable February 14, 2022, to common shareholders of record on February 3, 2022.

“Banner’s record 2021 operating results reflect the continued execution of our super community bank strategy including implementation of Banner Forward.  We are generating new client relationships and adding to our core funding position by growing core deposits while maintaining a moderate risk profile,” said Mark Grescovich, President and CEO.  “Our performance for the fourth quarter benefited from lower operating expense, continued core deposit growth and an acceleration of SBA PPP loan fee income as a result of SBA PPP loan forgiveness.  The unprecedented level of market liquidity and our continued focus on building client relationships contributed to our core deposits increasing 16% compared to December 31, 2020.  We continue to live by our core values, summed up as doing the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of capital through all economic cycles and changing events.”

“During the third quarter of 2021 we began implementing Banner Forward, a bank-wide initiative to drive revenue growth and reduce operating expense,” said Grescovich.  “Full implementation is expected by 2023, with the goal of delivering sequential improvements in operating performance over the course of the next six quarters while staying true to our mission and value proposition of being connected, knowledgeable and responsive to our clients, communities and employees.  Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes.  During the fourth quarter of 2021, we incurred expenses of $1.2 million related to Banner Forward.”

At December 31, 2021, Banner Corporation had $16.80 billion in assets, $8.95 billion in net loans and $14.33 billion in deposits.  Banner operates 150 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

January 20, 2022

Fourth Quarter 2021 Highlights

•	Revenues decreased 6% to $146.0 million, primarily due to a decline in SBA PPP loan forgiveness related interest income, compared to $155.5 million in the preceding quarter, and increased 1% when compared to $144.9 million in the fourth quarter a year ago.

•	Net interest income decreased to $121.5 million in the fourth quarter of 2021, compared to $130.1 million in the preceding quarter and increased compared to $121.4 million in the fourth quarter a year ago.

•	Net interest margin on a tax equivalent basis was 3.17%, compared to 3.47% in the preceding quarter and 3.64% in the fourth quarter a year ago.

•	Mortgage banking revenues decreased 41% to $5.6 million, compared to $9.6 million in the preceding quarter, and decreased 47% compared to $10.6 million in the fourth quarter a year ago.

•	Return on average assets was 1.18%, compared to 1.20% in the preceding quarter and 1.04% in the fourth quarter a year ago.

•	Net loans receivable decreased to $8.95 billion at December 31, 2021, compared to $9.08 billion at September 30, 2021, and decreased 8% compared to $9.70 billion at December 31, 2020.

•	Non-performing assets decreased to $23.7 million, or 0.14% of total assets, at December 31, 2021, compared to $29.7 million, or 0.18% of total assets in the preceding quarter, and decreased from $36.5 million, or 0.24% of total assets, at December 31, 2020.

•	The allowance for credit losses - loans was $132.1 million, or 1.45% of total loans receivable, as of December 31, 2021, compared to $139.9 million, or 1.52% of total loans receivable as of September 30, 2021 and $167.3 million, or 1.69% of total loans receivable as of December 31, 2020.

•

Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 1% to $13.49 billion at December 31, 2021, compared to $13.31 billion at September 30, 2021, and increased 16% compared to $11.65 billion a year ago.  Core deposits represented 94% of total deposits at December 31, 2021.

•	Dividends to shareholders were $0.41 per share in the quarter ended December 31, 2021.

•	Common shareholders’ equity per share increased 1% to $49.35 at December 31, 2021, compared to $48.67 at the preceding quarter end, and increased 4% from $47.39 a year ago.

•	Tangible common shareholders’ equity per share* increased 2% to $38.02 at December 31, 2021, compared to $37.30 at the preceding quarter end, and increased 5% from $36.17 a year ago.

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

Significant Recent Initiatives and Events

In September 2021, Banner completed the consolidation of five branches as it continues to see migration of transactions to the digital space, reducing in-branch transactions.  In addition, Banner has made the decision to consolidate another seven branches in February 2022.  During the past year, client adoption of mobile and digital banking accelerated, while physical branch transaction volume declined.  Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic ends.

Income Statement Review

Net interest income was $121.5 million in the fourth quarter of 2021, compared to $130.1 million in the preceding quarter and $121.4 million in the fourth quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.17% for the fourth quarter of 2021, a 30 basis-point decrease compared to 3.47% in the preceding quarter and a 47 basis-point decrease compared to 3.64% in the fourth quarter a year ago.

“Lower interest income, primarily as a result of the decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness, adversely affected our net interest margin during the quarter.  This impact was partially offset by a decrease in the cost of funding liabilities,” said Grescovich.  Acquisition accounting adjustments added five basis points to the net interest margin in the current quarter, three basis points in the preceding quarter and five basis points in the fourth quarter a year ago.  The total purchase discount for acquired loans was $9.7 million at December 31, 2021, compared to $11.5 million at September 30, 2021, and $16.1 million at December 31, 2020.  For the year ended December 31, 2021, Banner’s net interest margin on a tax equivalent basis was 3.39% compared to 3.85% in 2020.

Average yields on interest-earning assets decreased 33 basis points to 3.29% in the fourth quarter compared to 3.62% for the preceding quarter and decreased 58 basis points compared to 3.87% in the fourth quarter a year ago.  These decreases in average yield between periods primarily reflects decreases in the average yield on investment securities and increases in the average balance of interest-bearing deposits, as excess liquidity was invested in low yielding short term investments.  Average loan yields decreased 31 basis points to 4.57% compared to 4.88% in the preceding quarter and increased four basis points compared to 4.53% in the fourth quarter a year ago.  The decrease in average loan yields during the current quarter compared to the preceding quarter was primarily the result of the decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness during the quarter.  Loan discount accretion added eight basis points to average loan yields in the current quarter, five basis points in the preceding quarter and seven basis points in the fourth quarter a year ago.  Deposit costs were 0.07% in the fourth quarter of 2021, a one basis-point decrease compared to the preceding quarter and a seven basis-point decrease compared to the fourth quarter a year ago.  The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020.  The total cost of funding liabilities was 0.13% during the fourth quarter of 2021, a three basis-point decrease compared to the preceding quarter and an 11 basis-point decrease compared to the fourth quarter a year ago.

Banner recorded a $5.2 million recapture of provision for credit losses in the current quarter (comprised of an $8.1 million recapture provision for credit losses - loans, a $2.3 million provision for credit losses - unfunded loan commitments and a $579,000 provision for credit losses - held-to-maturity debt securities).  This recapture compares to an $8.6 million recapture of provision for credit losses in the prior quarter (comprised of an $8.9 million recapture of provision for credit losses - loans and a $218,000 provision for credit losses - unfunded loan commitments) and a $602,000 provision for credit losses in the fourth quarter a year ago (comprised of a $593,000 recapture of provision for credit losses - loans and a $1.2 million provision for credit losses - unfunded loan commitments).  The recapture of provision for credit losses for the current and preceding quarters primarily reflects improvement in the level of adversely classified loans as well as in the forecasted economic indicators utilized to calculate credit losses.

Total non-interest income was $24.5 million in the fourth quarter of 2021, compared to $25.3 million in the preceding quarter and $23.5 million in the fourth quarter a year ago.  Deposit fees and other service charges were $10.3 million in the fourth quarter of 2021, compared to $10.5 million in the preceding quarter and $8.3 million in the fourth quarter a year ago.  The increase in deposit fees and other service charges from the fourth quarter a year ago is primarily a result of increased transaction deposit account activity and higher fees on certain transactions.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $5.6 million in the fourth quarter, compared to $9.6 million in the preceding quarter and decreased compared to $10.6 million in the fourth quarter of 2020.  The lower mortgage banking revenue for the current quarter compared to the prior quarter is primarily due to no multifamily loan sales or related gains during the current quarter compared to the prior quarter, which included $2.4 million of gain on the sale of multifamily loans.  The decrease from the fourth quarter of 2020 reflects a reduction in the volume of one- to four-family loans sold as well as a decrease in the gain on sale margin on one- to four-family held-for-sale loans.  Home purchase activity accounted for 64% of one- to four-family mortgage loan originations in the fourth quarter of 2021, compared to 68% in the prior quarter and 51% in the fourth quarter of 2020.  Miscellaneous non-interest income increased to $4.7 million in the fourth quarter of 2021, compared to $2.2 million in the preceding quarter and $1.4 million in the fourth quarter a year ago.  The increase in miscellaneous non-interest income from the prior quarter and fourth quarter a year ago is primarily a result of a valuation adjustment on the SBA servicing asset, higher gains related to SBA loans sold as well as gains related to the disposition of closed branch locations.  For the year ended December 31, 2021, total non-interest income decreased 2% to $96.4 million, compared to $98.6 million in 2020.

Banner’s fourth quarter 2021 results included a $2.7 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 and limited partnership investments, and a $136,000 net loss on the sale of securities.  In the preceding quarter, results included a $1.8 million net gain for fair value adjustments and a $56,000 net gain on the sale of securities.  In the fourth quarter a year ago, results included a $1.7 million net gain for fair value adjustments and a $197,000 net gain on the sale of securities.

Total revenue decreased 6% to $146.0 million for the fourth quarter of 2021, compared to $155.5 million in the preceding quarter, and increased 1% compared to $144.9 million in the fourth quarter a year ago.  For the year, total revenues increased 2% to $593.3 million compared to $579.9 million for the same period one year earlier.  Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $143.4 million in the fourth quarter of 2021, compared to $153.6 million in the preceding quarter and $143.0 million in the fourth quarter of 2020.  For the year ended December 31, 2021, adjusted revenue* was $588.2 million, compared to $579.6 million in 2020.

Total non-interest expense was $91.8 million in the fourth quarter of 2021, compared to $102.1 million in the preceding quarter and $95.6 million in the fourth quarter of 2020.  The decrease in non-interest expense for the current quarter compared to the prior quarter primarily reflects a $10.1 million decrease in professional and legal expenses.  The decrease in professional and legal expenses was primarily due to $5.8 million of consultant expense related to the Banner Forward initiative and a $4.0 million accrual related to pending litigation recorded during the prior quarter.  Additionally, salary and employee benefits expense decreased $2.0 million, primarily due to a reduction in staffing, and payment and card processing services expense decreased $1.1 million, primarily reflecting a decrease in fraud related losses.  These decreases were partially offset by a $2.3 million loss on extinguishment of debt as a result of the redemption of $8.2 million of junior subordinated debentures during the current quarter.  The year-over-year quarterly decrease in non-interest expense also primarily reflects decreases in salary and employee benefits expense, and professional and legal expenses.  The year-over-year quarterly decreases in non-interest expense were partially offset by an increase in payment and card processing services expense, a decrease in capitalized loan origination costs and the previously mentioned loss on extinguishment of debt.  COVID-19 expenses were

$127,000 for the fourth quarter of 2021, compared to $44,000 for the preceding quarter and $333,000 in the fourth quarter a year ago.  For the year, total non-interest expense was $380.1 million, compared to $369.6 million in the same period a year earlier.  Banner’s efficiency ratio was 62.88% for the current quarter, compared to 65.70% in the preceding quarter and 65.93% in the year ago quarter.  Banner’s adjusted efficiency ratio* was 59.71% for the current quarter, compared to 59.65% in the preceding quarter and 64.31% in the year ago quarter.

Total loans receivable decreased 1% to $9.08 billion at December 31, 2021, compared to $9.22 billion at September 30, 2021, and decreased 8% when compared to $9.87 billion at December 31, 2020.  The decrease in total loans receivable compared to the prior quarter primarily reflects the forgiveness of SBA PPP loans.  Excluding SBA PPP loans, total loans receivable increased $42.6 million during the current quarter.  SBA PPP loans decreased 57% to $133.9 million at December 31, 2021, compared to $310.2 million at September 30, 2021, and decreased 87% when compared to $1.04 billion at December 31, 2020.  The decrease in SBA PPP loans was partially offset by increases in commercial real estate and multifamily real estate.  Commercial real estate and multifamily real estate loans increased 1% to $4.28 billion at December 31, 2021, compared to $4.24 billion at September 30, 2021, and increased 6% compared to $4.03 billion a year ago.  Commercial business loans decreased 7% to $1.96 billion at December 31, 2021, compared to $2.12 billion at September 30, 2021, and decreased 33% compared to $2.92 billion a year ago, primarily due to SBA PPP loans forgiven.  Excluding SBA PPP loans, commercial business loans increased 1% to $1.83 billion at December 31, 2021, compared to $1.82 billion at September 30, 2021, and decreased 2% compared to $1.88 billion a year ago.  Agricultural business loans decreased to $285.8 million at December 31, 2021, compared to $287.5 million at September 30, 2021 and decreased from $299.9 million a year ago.  Total construction, land and land development loans were $1.31 billion at December 31, 2021, a 1% decrease from $1.33 billion at September 30, 2021, and a 2% increase compared to $1.29 billion a year earlier.  Consumer loans decreased to $555.9 million at December 31, 2021, compared to $561.2 million at September 30, 2021, and decreased from $605.8 million a year ago.  One- to four-family loans increased slightly to $683.3 million at December 31, 2021, compared to $682.4 million at September 30, 2021, and decreased from $717.9 million a year ago.  The year over year decrease primarily reflects held for investment loans being refinanced and sold as held for sale loans.

Loans held for sale were $96.5 million at December 31, 2021, compared to $63.7 million at September 30, 2021, and $243.8 million at December 31, 2020.  The volume of one- to four- family residential mortgage loans sold was $245.9 million in the current quarter, compared to $232.2 million in the preceding quarter and $356.6 million in the fourth quarter a year ago.  Banner sold no multifamily loans during the fourth quarter of 2021, compared to $96.1 million in the preceding quarter and $10.4 million in the fourth quarter a year ago.

Total deposits increased 1% to $14.33 billion at December 31, 2021, compared to $14.16 billion at September 30, 2021, and increased 14% when compared to $12.57 billion a year ago.  The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic.  Non-interest-bearing account balances decreased to $6.39 billion at December 31, 2021, compared to $6.40 billion at September 30, 2021, and increased 16% compared to $5.49 billion a year ago.  Core deposits were 94% of total deposits at both December 31, 2021 and September 30, 2021.  Certificates of deposit decreased to $838.6 million at December 31, 2021, compared to $851.1 million at September 30, 2021, and decreased 8% compared to $915.3 million a year earlier.  FHLB borrowings were $50.0 million at both December 31, 2021 and September 30, 2021 and decreased from $150.0 million a year ago.

At December 31, 2021, total common shareholders’ equity was $1.69 billion, or 10.06% of assets, compared to $1.67 billion or 10.02% of assets at September 30, 2021, and $1.67 billion or 11.09% of assets a year ago.  At December 31, 2021, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.30 billion, or 7.93% of tangible assets*, compared to $1.28 billion, or 7.86% of tangible assets, at September 30, 2021, and $1.27 billion, or 8.69% of tangible assets, a year ago.  Banner’s tangible book value per share* increased to $38.02 at December 31, 2021, compared to $36.17 per share a year ago.

Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.”  At December 31, 2021, Banner's common equity Tier 1 capital ratio was 11.54%, its Tier 1 leverage capital to average assets ratio was 8.76%, and its total capital to risk-weighted assets ratio was 14.71%.

About the Company

Banner Corporation is a $16.80 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.

The COVID-19, pandemic is adversely affecting us, our clients, 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. Deterioration in general business and economic conditions, including 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 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 client behavior and net interest margin; (5) uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the potential transition away from LIBOR toward new interest rate benchmarks; (6) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (9) the ability to access cost-effective funding; (10) disruptions, security breaches or other adverse events, failures

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)