Walla Walla, WA - January 23, 2020 - Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported record 2019 net income, which increased 7% to $146.3 million, or $4.18 per diluted share, compared to $136.5 million, or $4.15 per diluted share, in 2018.  In the fourth quarter of 2019, net income totaled $33.7 million, or $0.95 per diluted share, compared to $39.6 million, or $1.15 per diluted share, in the preceding quarter and $37.5 million, or $1.09 per diluted share, in the fourth quarter of 2018.  Fourth quarter of 2019 results include $4.4 million of acquisition-related expenses, compared to $676,000 of acquisition-related expenses in the preceding quarter and $4.6 million in the fourth quarter of 2018.  The 2019 results include $7.5 million of acquisition-related expenses compared to $5.6 million of acquisition-related expenses for 2018.

“Banner’s record 2019 operating results reflect the continued execution of our super community bank strategy.  We are generating new client relationships and adding to our core funding position by growing core deposits while maintaining a moderate risk profile,” stated Mark J. Grescovich, President and Chief Executive Officer.  “During the fourth quarter, we announced the completion of the merger with AltaPacific Bancorp.  This combination is a complementary fit, both strategically and culturally, and provides scale to our California franchise with attractive core deposits and strong commercial banking relationships.”

At December 31, 2019, Banner Corporation had $12.61 billion in assets, $9.21 billion in net loans and $10.05 billion in deposits.  Banner operates 178 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Fourth Quarter 2019 Highlights

•	Revenues increased 2% to $139.8 million, compared to $137.5 million in the preceding quarter and increased nominally compared to $138.5 million in the fourth quarter a year ago.

•	Net interest income, before the provision for loan losses, was $119.5 million, compared to $116.6 million in the preceding quarter and $117.5 million in the fourth quarter a year ago.

•	Net interest margin was 4.20%, compared to 4.25% in the preceding quarter and 4.47% in the fourth quarter a year ago.

•	Mortgage banking revenues were $6.2 million, compared to $6.6 million in the preceding quarter and increased 4% compared to $6.0 million in the fourth quarter a year ago.

•	Return on average assets was 1.07% compared to 1.31% in the preceding quarter and 1.32% in the fourth quarter a year ago.

•	Net loans receivable increased 5% to $9.20 billion at December 31, 2019, compared to $8.74 billion at September 30, 2019, and increased 7% when compared to $8.59 billion at December 31, 2018.

•	Non-performing assets increased to $40.5 million, or 0.32% of total assets, at December 31, 2019, compared to $18.6 million, or 0.15% of total assets in the preceding quarter, and $18.9 million, or 0.16% of total assets, at December 31, 2018.

•	Provision for loan losses was $4.0 million, and the allowance for loan losses was $100.6 million, or 1.08% of total loans receivable, as of December 31, 2019.

•	Core deposits increased 5% to $8.93 billion at December 31, 2019, compared to $8.51 billion at September 30, 2019 and increased 10% compared to $8.16 billion a year ago.  Core deposits represented 89% of total deposits at December 31, 2019.

•	Dividends to shareholders were $1.41 per share in the quarter ended December 31, 2019, including a $0.41 regular quarterly dividend and a $1.00 special cash dividend.

•	Common shareholders’ equity per share decreased slightly to $44.59 at December 31, 2019, compared to $44.80 at the preceding quarter end and increased 6% from $42.03 a year ago.

•	Tangible common shareholders' equity per share* decreased 2% to $33.33 at December 31, 2019, compared to $34.10 at the preceding quarter end and increased 6% from $31.45 a year ago.

BANR Fourth Quarter 2019 Results

January 23, 2020

*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, amortization of core deposit intangibles, real estate owned gain (loss), 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.

Certain reclassifications have been made to the 2018 Consolidated Financial Statements and/or schedules to conform to the 2019 presentation.  These reclassifications have affected certain line items and ratios for the prior periods but have not changed net income or shareholders’ equity for those periods.  The effect of these reclassifications is considered immaterial.

Significant Recent Initiatives and Events

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 $426.6 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner.

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).  Currently GAAP requires 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.  Banner is in the process of finalizing the adoption of ASU 2016-13.

Based on the initial December 31, 2019 model results Banner estimates the adoption of ASU No. 2016-13 will result in a combined increase to its Allowance for Credit Loss and Reserve for Unfunded Commitments of 10% to 20%.  The increase will be recorded as an adjustment to equity as of the adoption date.

Income Statement Review

Banner's net interest margin was 4.20% for the fourth quarter of 2019, a five basis-point decrease compared to 4.25% in the preceding quarter and a 27 basis-point decrease compared to 4.47% in the fourth quarter a year ago.  The decrease in net interest margin during the quarter primarily reflects lower yields on average interest-earning assets largely as a result of three 25 basis point decreases by the Federal Reserve in the targeted Fed Funds Rate in the third and fourth quarter coupled with a longer-term decline in the 10-year treasury yield.  Acquisition accounting adjustments added eight basis points to the net interest margin in the current quarter compared to six basis points in the preceding quarter and 12 basis points in the fourth quarter a year ago.  The total purchase discount for acquired loans was $25.0 million at December 31, 2019, compared to $21.3 million at September 30, 2019, and $25.7 million at December 31, 2018.  For the year ended December 31, 2019, Banner’s net interest margin was 4.30% compared to 4.43% in 2018.

Average interest-earning asset yields decreased ten basis points to 4.69% compared to 4.79% for the preceding quarter and decreased 21 basis points compared to 4.90% in the fourth quarter a year ago.  Average loan yields decreased seven basis points to 5.13% compared to 5.20% in the preceding quarter and decreased 24 basis points compared to 5.37% in the fourth quarter a year ago.  Loan discount accretion added 11 basis points to loan yields in the fourth quarter of 2019, compared to seven basis points in the preceding quarter, and 16 basis points in the fourth quarter a year ago.  Deposit costs were 0.40% in the fourth quarter of 2019, a two basis-point decrease compared to the preceding quarter and an eight basis-point increase compared to the fourth quarter a year ago.  The decrease in deposit costs during the current quarter compared to the preceding quarter are 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 0.52% during the fourth quarter of 2019, a five basis-point decrease compared to the preceding quarter and a six basis-point increase compared to the fourth quarter a year ago.

Banner recorded a $4.0 million provision for loan losses in the current quarter, compared to $2.0 million in the prior quarter and $2.5 million in the same quarter a year ago.  The provision is primarily a result of new loan originations, the increase in non-performing loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs.

Total non-interest income was $20.3 million in the fourth quarter of 2019, compared to $20.9 million in the third quarter of 2019 and $21.0 million in the fourth quarter a year ago.  Deposit fees and other service charges were $9.6 million in the fourth quarter of 2019, compared to $10.3 million in the preceding quarter and $12.5 million in the fourth quarter a year ago.  The decrease in deposit fees and other service charges from the fourth quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, which reduced interchange fee income by approximately $7 million during the second half of 2019.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan

servicing fees, were $6.2 million in the fourth quarter, compared to $6.6 million in the preceding quarter and $6.0 million in the fourth quarter of 2018.  The higher mortgage banking revenue year-over-year reflected an increase in residential mortgage held-for-sale loan production.  The increase in residential held-for-sale loan production was primarily due to increased refinance activity.  Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in both the fourth quarter of 2019 and in the prior quarter, compared to 78% in the fourth quarter of 2018.  For the year, total non-interest income was $81.9 million, compared to $84.0 million in 2018.

Banner’s fourth quarter 2019 results included a $36,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading, and a $62,000 net gain on the sale of securities.  In the preceding quarter, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.  In the fourth quarter a year ago, results included a $198,000 net gain for fair value adjustments and a $885,000 net loss on the sale of securities.

Total revenue increased 2% to $139.8 million for the fourth quarter of 2019, compared to $137.5 million in the preceding quarter and increased nominally compared to $138.5 million in the fourth quarter a year ago.  For the year, total revenue increased 7% to $550.9 million compared to $515.0 million in 2018.  Adjusted revenue* (the total of net interest income before provision for loan 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 $139.7 million in the fourth quarter of 2019, compared to $137.6 million in the preceding quarter and $139.2 million in the fourth quarter of 2018.  For the year, adjusted revenue* was $551.0 million, compared to $512.0 million in 2018.

Banner’s total non-interest expense was $93.7 million in the fourth quarter of 2019, compared to $87.3 million in the preceding quarter and $95.4 million in the fourth quarter of 2018.  Acquisition-related expenses were $4.4 million for the fourth quarter of 2019, compared to $676,000 for the preceding quarter, and $4.6 million in the fourth quarter of 2018.  The fourth quarter of 2019 non-interest expenses include two months of expenses associated with the operations acquired in the AltaPacific acquisition.  In addition, the fourth quarter of 2019 miscellaneous non-interest expense included $735,000 of expense related to the prepayment of $150 million of FHLB advances.  For the year, total non-interest expense was $357.7 million, compared to $341.4 million in 2018.  Banner’s efficiency ratio was 67.03% for the current quarter, compared to 63.50% in the preceding quarter and 68.89% in the year ago quarter.  Banner’s adjusted efficiency ratio* was 61.19% for the current quarter, compared to 60.71% in the preceding quarter and 63.06% in the year ago quarter.

For the fourth quarter of 2019, Banner had $8.4 million in state and federal income tax expense for an effective tax rate of 20.0%, reflecting the benefits from tax exempt income.  Banner’s 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 4% to $12.60 billion at December 31, 2019, compared to $12.10 billion at September 30, 2019, and increased 6% when compared to $11.87 billion at December 31, 2018.  The total of securities and interest-bearing deposits held at other banks was $1.89 billion at December 31, 2019, compared to $1.87 billion at September 30, 2019 and $1.94 billion at December 31, 2018.  The average effective duration of Banner's securities portfolio was approximately 3.5 years at both December 31, 2019 and December 31, 2018.

Net loans receivable increased 5% to $9.20 billion at December 31, 2019, compared to $8.74 billion at September 30, 2019, and increased 7% when compared to $8.59 billion at December 31, 2018.  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 9% to $4.36 billion at December 31, 2019, compared to $4.01 billion at September 30, 2019, and increased 11% compared to $3.93 billion a year ago.  Commercial business loans increased 5% to $1.69 billion at December 31, 2019, compared to $1.62 billion at September 30, 2019, and increased 14% compared to $1.48 billion a year ago.  Agricultural business loans decreased to $370.5 million at December 31, 2019, compared to $390.5 million three months earlier and $404.9 million a year ago.  Total construction, land and land development loans were $1.17 billion at December 31, 2019, an 8% increase from $1.08 billion at September 30, 2019, and a 6% increase compared to $1.11 billion a year earlier.  Consumer loans decreased to $762.8 million at December 31, 2019, compared to $779.6 million at September 30, 2019, and $785.0 million a year ago.  One- to four-family loans decreased modestly to $945.6 million at December 31, 2019, compared to $947.5 million at September 30, 2019, and $973.6 million a year ago.

Loans held for sale were $210.4 million at December 31, 2019, compared to $244.9 million at September 30, 2019, and $171.0 million at December 31, 2018.  The volume of one- to four- family residential mortgage loans sold was $268.1 million in the current quarter, compared to $204.6 million in the preceding quarter and $130.1 million in the fourth quarter a year ago.  During the fourth quarter of 2019, Banner sold $103.4 million in multifamily loans.  Banner sold $79.4 million in multifamily loans in the preceding quarter and sold $26.8 million in the fourth quarter a year ago.

Total deposits increased 3% to $10.05 billion at December 31, 2019, compared to $9.73 billion at September 30, 2019, and increased 6% when compared to $9.48 billion a year ago.  The 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 2% to $3.95 billion at December 31, 2019, compared to $3.89 billion at September 30, 2019, and increased 8% compared to $3.66 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 5% from the prior quarter and increased 9% compared to a year ago.  Core deposits represented 89% of total deposits at December 31, 2019, compared to 87% of total deposits at September 30, 2019, and 86% of total deposits a year earlier.  Certificates of deposit decreased 8% to $1.12 billion at December 31, 2019, compared to $1.22 billion at September 30, 2019, and decreased 15% compared to $1.32 billion a year earlier.  The decrease in certificates of deposit primarily reflects the decrease in brokered deposits to $202.9 million at December 31, 2019, compared to $299.5 million at September 30, 2019 and $377.3 million a year ago.  FHLB borrowings totaled $450.0 million at December 31, 2019 compared to $382.0 million at September 30, 2019 and $540.2 million a year earlier.

At December 31, 2019, total common shareholders' equity was $1.59 billion, or 12.65% of assets, compared to $1.53 billion or 12.65% of assets at September 30, 2019, and $1.48 billion or 12.46% of assets a year ago.  At December 31, 2019, tangible common shareholders' equity*, which excludes

goodwill and other intangible assets, net, was $1.19 billion, or 9.77% of tangible assets*, compared to $1.17 billion, or 9.93% of tangible assets, at September 30, 2019, and $1.11 billion, or 9.62% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $33.33 at December 31, 2019, compared to $31.45 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 December 31, 2019, Banner's common equity Tier 1 capital ratio was 10.63%, its Tier 1 leverage capital to average assets ratio was 10.71%, and its total capital to risk-weighted assets ratio was 12.93%.

Credit Quality

The allowance for loan losses was $100.6 million at December 31, 2019, or 1.08% of total loans receivable outstanding and 254% of non-performing loans compared to $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans, and $96.5 million at December 31, 2018, or 1.11% of total loans receivable outstanding and 616% of non-performing loans.  Net loan charge-offs totaled $1.2 million in the fourth quarter, compared to net loan charge-offs of $2.5 million in the preceding quarter and net loan charge-offs of $1.3 million in the fourth quarter a year ago.  Banner recorded a $4.0 million provision for loan losses in the current quarter primarily as a result of the origination of new loans, the increase in non-performing loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, compared to $2.0 million in the prior quarter and $2.5 million in the year ago quarter.  Non-performing loans were $39.6 million at December 31, 2019, compared to $18.3 million at September 30, 2019, and $15.7 million a year ago.  The increase in non-performing loans during the quarter was largely due to one commercial banking relationship moving to nonaccrual.  Real estate owned and other repossessed assets were $936,000 at December 31, 2019, compared to $343,000 at September 30, 2019, and $3.2 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 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 loan losses is recorded for acquired loans at the acquisition date.  At December 31, 2019, the total purchase discount for acquired loans was $25.0 million.

Banner's total non-performing assets were $40.5 million, or 0.32% of total assets, at December 31, 2019, compared to $18.6 million, or 0.15% of total assets, at September 30, 2019, and $18.9 million, or 0.16% of total assets, a year ago.  In addition to non-performing assets, there were $15.9 million of purchased credit-impaired loans at December 31, 2019, compared to $12.6 million at September 30, 2019 and $14.4 million at December 31, 2018.

Conference Call

Banner will host a conference call on Friday, January 24, 2020, at 8:00 a.m. PST, to discuss its fourth 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 10137616, or at www.bannerbank.com.

About the Company

Banner Corporation is a $12.61 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.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the AltaPacific acquisition might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for loan losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior and net interest margin; (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 customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (12) the costs, effects and outcomes of litigation; (13) 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; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; (16) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors; and (17) 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.

January 23, 2020

 ⁽¹⁾ Includes $2.5 million of purchased credit-impaired loans at December 31, 2019 compared to $112,000 at September 30, 2019 and $3,000 at December 31, 2018.

      ⁽²⁾ Delinquent loans include $2.8 million of delinquent purchased credit-impaired loans at December 31, 2019 compared to $412,000 at September 30, 2019 and $519,000 at December 31, 2018.

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending December 31, 2019, September 30, 2019, and December 31, 2018 and the twelve months ending December 31, 2019 and December 31, 2018 (in thousands):