Market Overview

Banner Corporation Second Quarter Net Income Increases to $25.5 Million, or $0.77 per Diluted Share; Fueled by Strong Net Interest Income, Increased Deposit Fees and Mortgage Banking Revenues

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WALLA WALLA, Wash., July 26, 2017 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported that continued revenue growth contributed to strong second quarter 2017 operating results.  Net income in the second quarter of 2017 increased 7% to $25.5 million, or $0.77 per diluted share, compared to $23.8 million, or $0.72 per diluted share, in the preceding quarter and increased 21% compared to $21.0 million, or $0.61 per diluted share, in the second quarter a year ago.  There were no acquisition-related costs in the second quarter of 2017 or the preceding quarter.  In the second quarter a year ago acquisition costs totaled $2.4 million.  In the first six months of 2017, net income increased 27% to $49.2 million, or $1.49 per diluted share, compared to $38.7 million, or $1.14 per diluted share, in the first six months of 2016.  There were no acquisition-related costs in the first half of 2017, compared to $9.2 million in acquisition-related costs in the first half of 2016.

"Banner's strong second quarter operating results were fueled by increased net interest income driven by a solid net interest margin and the Company's earning asset expansion following the renewed leveraging of the balance sheet, which occurred during the preceding quarter and had its full effect in the second quarter," stated Mark J. Grescovich, President and Chief Executive Officer.  "Accelerated business activity resulted in loan growth and deposit gathering which generated increases in net interest income, deposit fees and improved mortgage banking activity.  Earlier this year we crossed the threshold of $10.0 billion in total assets, incurring increased expenses related to enhanced infrastructure and regulatory compliance costs.  While increasing regulatory costs are a significant headwind, through the hard work of our employees, we are continuing to execute our strategies to deliver revenue growth, sustainable profitability and increasing value to our shareholders.  Our continuing strong earnings trends allowed us to declare a special dividend of $1.00 per share in addition to the regular quarterly dividend of $0.25 per share while effectively managing and maintaining an appropriate capital position."

At June 30, 2017, Banner Corporation had $10.20 billion in assets, $7.46 billion in net loans and $8.48 billion in deposits.  Banner operates 190 branch offices located in nine of the top 20 largest western Metropolitan Statistical Areas by population.

Second Quarter 2017 Highlights

  • Net income increased 7% to $25.5 million, compared to $23.8 million in the preceding quarter and increased 21% compared to $21.0 million in the second quarter of 2016.
  • Return on average assets was 1.01% in the current quarter, compared to 0.97% in the preceding quarter and 0.86% in the same quarter a year ago.
  • Revenues from core operations* increased 6% to $122.9 million, compared to $116.4 million in the preceding quarter, and increased 7% compared to $114.4 million in the second quarter a year ago.
  • Net interest margin was 4.33% for the current quarter, compared to 4.25% in the preceding quarter and 4.20% in the second quarter a year ago.
  • Deposit fees and other service charges were $13.2 million, a 9% increase compared to $12.2 million in both the preceding quarter and in the same quarter a year ago.
  • Revenues from mortgage banking operations increased 48% to $6.8 million compared to $4.6 million in the preceding quarter and $6.6 million in the second quarter a year ago.
  • Provision for loan losses was $2.0 million, increasing the allowance for loan losses to $88.6 million or 1.17% of total loans.
  • Core deposits represented 86% of total deposits at June 30, 2017.
  • Quarterly dividends to shareholders were $0.25 per share, and a special cash dividend of $1.00 per share was also declared.
  • Common shareholders' tangible equity per share* was $31.21 at June 30, 2017, compared to $31.68 at the preceding quarter end and $30.86 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 10.46% at June 30, 2017, compared to 10.72% at the preceding quarter end and 11.00% a year ago.

*Revenues from core operations and non-interest income from core operations (both of which exclude fair value adjustments and gains and losses on the sale of securities), and references to 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) 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.

Income Statement Review

Banner's second quarter net interest income, before the provision for loan losses, increased 5% to $99.7 million, compared to $94.9 million in the preceding quarter and increased 7% compared to $93.1 million in the second quarter a year ago.  In the first six months of 2017, net interest income, before the provision for loan losses, increased 6% to $194.6 million compared to $184.2 million in the first six months of 2016.

"Our net interest margin increased eight basis points compared to the preceding quarter, largely reflecting higher loan yields as a result of rising short-term interest rates and increased purchased loan discount accretion," said Grescovich.  Banner's net interest margin was 4.33% for the second quarter of 2017, compared to 4.25% in the preceding quarter and a 13 basis point improvement compared to 4.20% in the second quarter a year ago.  Purchase accounting adjustments, principally discount accretion, added 15 basis points to the net interest margin in the current quarter compared to 10 basis points in the preceding quarter and 19 basis points in the second quarter a year ago.  In the first six months of 2017, Banner's net interest margin improved 13 basis points to 4.29% compared to 4.16% in the first six months of 2016.  Purchase accounting adjustments added 13 basis points to the net interest margin for the first six months of 2017 compared to 15 basis points for the first six months of 2016.

Average interest-earning asset yields increased nine basis points to 4.53% compared to 4.44% for the preceding quarter and increased 15 basis points compared to 4.38% in the second quarter a year ago.  Average loan yields increased 18 basis points to 4.98% compared to the preceding quarter and increased 12 basis points from the second quarter a year ago.  Loan discount accretion added 13 basis points to loan yields in the second quarter, eight basis points to the preceding quarter and 14 basis points to the second quarter a year ago.  Deposit costs increased one basis point to 0.15% compared to both the preceding quarter and the second quarter a year ago.  The total cost of funds increased two basis points to 0.22% during the second quarter compared to 0.20% for both the preceding quarter and the second quarter a year ago.

"As expected, due to the addition of new loans and the renewal of acquired loans out of the discounted loan portfolio, we recorded a $2.0 million provision for loan losses during the second quarter, the same as in the preceding quarter and the year ago quarter," said Grescovich.  "While our asset quality metrics remain exceptionally good, adding to the loan loss allowance will likely continue as we strive to maintain an appropriate level of reserves and a moderate risk profile."

Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $6.8 million in the second quarter compared to $4.6 million in the preceding quarter and $6.6 million in the second quarter of 2016.  Sales of multifamily loans in the current quarter resulted in gains of $1.2 million, while sales of multifamily loans generated $70,000 of gains in the preceding quarter.  Home purchase activity accounted for 78% of second quarter one- to four-family mortgage banking loan originations.

Banner's deposit fees and other service charges were $13.2 million in the second quarter, a 9% increase compared to $12.2 million in both the preceding quarter and in the second quarter a year ago.

Second quarter 2017 results included a $650,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value and a $54,000 net loss on the sale of securities.  In the preceding quarter, results included a $688,000 net loss for fair value adjustments that was partly offset by a $13,000 net gain on the sale of securities.  In the second quarter a year ago, results included a $377,000 net loss for fair value adjustments and a $380,000 net loss on the sale of securities.

Total revenues increased 6% to $122.2 million for the second quarter of 2017, compared to $115.7 million in the preceding quarter and increased 7% compared to $113.7 million in the second quarter a year ago.  In the first six months of 2017, total revenues increased 6% to $237.9 million, compared to $224.7 million in the first six months of 2016.  Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) increased 6% to $122.9 million in the second quarter of 2017, compared to $116.4 million in the preceding quarter, and increased 7% compared to $114.4 million in the second quarter of 2016.  In the first six months of 2017, revenues from core operations* was $239.3 million, compared to $225.4 million in the first six months of 2016.

Total non-interest income, which includes the changes in the valuation of financial instruments carried at fair value and gains and losses on the sale of securities, was $22.5 million in the second quarter of 2017, compared to $20.8 million in the first quarter of 2017 and $20.1 million in the second quarter a year ago.  In the first six months of 2017, total non-interest income was $43.3 million compared to $40.5 million in the first six months of 2016.  Non-interest income from core operations,* which excludes gains and losses on sale of securities and net changes in the valuation of financial instruments, was $23.2 million in the second quarter of 2017, compared to $21.5 million for the first quarter of 2017 and $21.3 million in the second quarter a year ago.  In the first six months of 2017, non-interest income from core operations* was $44.7 million, compared to $41.2 million in the first six months of 2016.

Banner's total non-interest expenses were $81.9 million in the second quarter of 2017, compared to $78.1 million in the preceding quarter and $79.9 million in the second quarter of 2016.  The current and preceding quarter's non-interest expenses included increased salary and employee benefits and elevated costs for professional services as compared to the second quarter a year ago largely as result of enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out as a result of crossing the $10 billion threshold.  There were no acquisition-related expenses in the current quarter or in the preceding quarter, compared to $2.4 million in the second quarter a year ago.  In the first six months of 2017, non-interest expense was $160.0 million compared to $163.9 million in the first six months of 2016.  The first six months of 2016 included $9.2 million of acquisition expenses.  There were no acquisition-related expenses in the first six months of 2017.

For the second quarter of 2017, Banner recorded $12.8 million in state and federal income tax expense for an effective tax rate of 33.4%, which reflects normal statutory tax rates reduced by the effect of tax-exempt income and certain tax credits.

Balance Sheet Review

Banner's total assets increased to $10.20 billion at June 30, 2017, from $10.07 billion at March 31, 2017 and $9.92 billion a year ago.  The total of securities and interest-bearing deposits held at other banks was $1.66 billion at June 30, 2017, compared to $1.62 billion at March 31, 2017 and $1.16 billion at December 31, 2016.  The increase in the securities portfolio during two most recent quarters reflects Banner's renewed leveraging strategy as it crossed the $10 billion assets threshold.  In the third and fourth quarters of 2016, Banner reduced its holdings of securities and use of wholesale funding to ensure that it remained below $10 billion in total assets at December 31, 2016.  The average effective duration of Banner's securities portfolio was approximately 3.5 years at June 30, 2017, compared to 3.8 years at December 31, 2016 and 2.6 years at June 30, 2016.

"Net loans increased $128 million during the quarter and increased 3% year over year, with good production in targeted loan types, including commercial and agricultural business, commercial real estate, construction and development loans and consumer loans," said Grescovich.  "We continue to be encouraged by robust economic activity in the markets that we serve and see significant potential for growth in our loan origination pipelines."

Net loans receivable increased 2% to $7.46 billion at June 30, 2017, compared to $7.33 billion at March 31, 2017, and increased 3% compared to $7.24 billion a year ago.  Commercial real estate and multifamily real estate loans decreased slightly to $3.62 billion at June 30, 2017, compared to $3.63 billion at March 31, 2017, but increased 4% compared to $3.49 billion a year ago.  Commercial business loans increased 5% to $1.29 billion at June 30, 2017, compared to $1.22 billion three months earlier and increased 4% compared to $1.23 billion a year ago.  Agricultural business loans increased 10% to $344.4 million at June 30, 2017, compared to $313.4 million three months earlier but declined compared to $370.5 million a year ago.  Total construction, land and land development loans increased modestly to $811.5 million at June 30, 2017, compared to $803.7 million at March 31, 2017, and increased 14% compared to $713.3 million a year earlier.  Consumer loans increased largely as a result of a successful second quarter campaign to generate additional home equity lines of credit.  One- to four-family loans continued to decline as a result of repayments with nearly all newly originated mortgage loans being sold in the secondary market.

Loans held for sale decreased to $66.2 million at June 30, 2017, compared to $86.7 million at March 31, 2017, and $113.2 million at June 30, 2016. Banner sold $114.8 million of multifamily loans during the quarter ended June 30, 2017 and $200.7 million during the preceding quarter.  Loans held for sale at June 30, 2017 included $42.9 million of multifamily loans and $23.3 million of one- to four-family loans.

Total deposits were $8.48 billion at June 30, 2017, a modest increase compared to $8.42 billion at March 31, 2017, and a 7% increase compared to $7.92 billion a year ago.  Non-interest-bearing account balances increased 8% to $3.25 billion at June 30, 2017, compared to $3.02 billion a year ago.  Interest-bearing transaction and savings accounts increased 9% to $4.02 billion compared to $3.69 billion a year ago.  Certificates of deposit were $1.21 billion at June 30, 2017, unchanged from a year earlier.  Brokered deposits totaled $250.0 million at June 30, 2017, compared to $171.5 million at March 31, 2017 and $93.0 million a year ago.  Brokered deposits increased in the current quarter and six months year-to-date to provide funding for the purchase of investment securities in connection with Banner's renewed leveraging strategy.

Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) were essentially unchanged during the current quarter as a result of expected seasonal trends but increased 8% compared to June 30, 2016, reflecting additional account growth as well as increased balances from existing clients.  Core deposits represented 86% of total deposits at both June 30, 2017 and March 31, 2017 and 85% of total deposits a year earlier.  The average cost of deposits was 0.15% for the quarter ended June 30, 2017, a one basis point increase compared to both the preceding quarter and the quarter ended June 30, 2016.

At June 30, 2017, total common shareholders' equity was $1.31 billion, or $39.36 per share, compared to $1.32 billion at March 31, 2017 and $1.34 billion a year ago.  During the second quarter Banner declared and accrued a regular $0.25 per share quarterly dividend as well as a $1.00 per share special dividend.  At June 30, 2017, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.04 billion, or 10.46% of tangible assets*, compared to $1.05 billion, or 10.72% of tangible assets, at March 31, 2017 and $1.06 billion, or 11.00% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $31.21 at June 30, 2017, compared to $30.86 per share a year ago.

Banner Corporation and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as "well-capitalized" under the Basel III and Dodd Frank regulatory standards.  At June 30, 2017, Banner Corporation's common equity Tier 1 capital ratio was 11.26%, its Tier 1 leverage capital to average assets ratio was 11.51%, and its total capital to risk-weighted assets ratio was 13.68%.

Credit Quality

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw Bank 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 and lease losses is recorded for acquired loans at the acquisition date.  Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisitions of AmericanWest Bank and Siuslaw Bank.

The allowance for loan losses was $88.6 million at June 30, 2017, or 1.17% of total loans outstanding and 405% of non-performing loans compared to $81.3 million at June 30, 2016, or 1.11% of total loans outstanding and 321% of non-performing loans.  Banner had net recoveries of $59,000 in the second quarter compared to net charge-offs of $1.5 million in the first quarter of 2017 and net recoveries of $1.1 million in the second quarter a year ago.  Primarily as a result of the addition of new loans and the renewal of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses in the current quarter which was the same amount as recorded in the prior quarter and in the year ago quarter.  Non-performing loans were $21.9 million at June 30, 2017, compared to $18.1 million at March 31, 2017 and $25.3 million a year ago.  Real estate owned and other repossessed assets were $2.6 million at June 30, 2017, compared to $3.2 million at March 31, 2017 and $6.4 million a year ago.

Banner's non-performing assets were $24.5 million, or 0.24% of total assets, at June 30, 2017, compared to $21.3 million, or 0.21% of total assets, at March 31, 2017 and $31.7 million, or 0.32% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $26.3 million at June 30, 2017, compared to $30.5 million at March 31, 2017 and $45.4 million a year ago.

Conference Call

Banner will host a conference call on Thursday, July 27, 2017, 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 10109479, or at www.bannerbank.com.

About the Company

Banner Corporation is a $10.2 billion bank holding company operating two commercial banks in five 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 "believe," "will," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "plans," 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) 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; (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 loan 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, Utah and California in particular; (11) the costs, effects and outcomes of litigation; (12) new legislation or regulatory changes, including but not limited to the Dodd-Frank Act and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act and 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, 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 OPERATIONS   Quarters Ended   Six months ended
(in thousands except shares and per share data)   Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
                     
INTEREST INCOME:                    
Loans receivable   $ 94,795     $ 91,288     $ 88,935     $ 186,083     $ 175,893  
Mortgage-backed securities   6,239     4,647     5,274     10,886     10,664  
Securities and cash equivalents   3,402     3,161     3,112     6,563     6,065  
    104,436     99,096     97,321     203,532     192,622  
INTEREST EXPENSE:                    
Deposits   3,182     2,791     2,771     5,973     5,717  
Federal Home Loan Bank advances   301     273     339     574     618  
Other borrowings   83     74     78     157     153  
Junior subordinated debentures   1,164     1,104     985     2,268     1,944  
    4,730     4,242     4,173     8,972     8,432  
Net interest income before provision for loan losses   99,706     94,854     93,148     194,560     184,190  
PROVISION FOR LOAN LOSSES   2,000     2,000     2,000     4,000     2,000  
Net interest income   97,706     92,854     91,148     190,560     182,190  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   13,238     12,186     12,213     25,423     24,031  
Mortgage banking operations   6,754     4,603     6,625     11,357     12,268  
Bank owned life insurance   1,461     1,095     1,128     2,556     2,313  
Miscellaneous   1,720     3,636     1,328     5,356     2,592  
    23,173     21,520     21,294     44,692     41,204  
Net (loss) gain on sale of securities   (54 )   13     (380 )   (41 )   (359 )
Net change in valuation of financial instruments carried at fair value   (650 )   (688 )   (377 )   (1,338 )   (348 )
Total non-interest income   22,469     20,845     20,537     43,313     40,497  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   49,019     46,063     45,175     95,083     91,738  
Less capitalized loan origination costs   (4,598 )   (4,316 )   (4,907 )   (8,914 )   (9,157 )
Occupancy and equipment   12,045     11,996     11,052     24,041     21,440  
Information / computer data services   4,100     3,994     4,852     8,094     9,772  
Payment and card processing services   5,792     5,020     5,501     10,812     10,286  
Professional services   3,732     5,152     865     8,885     3,479  
Advertising and marketing   1,766     1,328     2,474     3,095     4,207  
Deposit insurance   1,071     1,266     1,311     2,337     2,649  
State/municipal business and use taxes   279     799     770     1,078     1,608  
Real estate operations   (363 )   (966 )   137     (1,329 )   534  
Amortization of core deposit intangibles   1,624     1,624     1,808     3,248     3,615  
Miscellaneous   7,463     6,118     8,437     13,577     14,526  
    81,930     78,078     77,475     160,007     154,697  
Acquisition related expenses           2,412         9,224  
Total non-interest expense   81,930     78,078     79,887     160,007     163,921  
Income before provision for income taxes   38,245     35,621     31,798     73,866     58,766  
PROVISION FOR INCOME TAXES   12,791     11,828     10,841     24,619     20,035  
NET INCOME   $ 25,454     $ 23,793     $ 20,957     $ 49,247     $ 38,731  
Earnings per share available to common shareholders:                    
Basic   $ 0.77     $ 0.72     $ 0.62     $ 1.49     $ 1.14  
Diluted   $ 0.77     $ 0.72     $ 0.61     $ 1.49     $ 1.14  
Cumulative dividends declared per common share   $ 1.25     $ 0.25     $ 0.21     $ 1.50     $ 0.42  
Weighted average common shares outstanding:                    
Basic   32,982,126     32,933,444     34,069,234     32,957,920     34,053,105  
Diluted   33,051,527     33,051,459     34,116,498     33,052,205     34,090,647  
Increase (decrease) in common shares outstanding   125,167     (40,523 )   129,109     84,644     108,305  


FINANCIAL CONDITION                   Percentage Change
(in thousands except shares and per share data)   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016   Prior Qtr   Prior Yr Qtr
                         
ASSETS                        
Cash and due from banks   $ 196,178     $ 196,277     $ 177,083     $ 158,446     (0.1 )%   23.8 %
Interest-bearing deposits   77,370     104,431     70,636     76,210     (25.9 )%   1.5 %
Total cash and cash equivalents   273,548     300,708     247,719     234,656     (9.0 )%   16.6 %
Securities - trading   24,950     24,753     24,568     33,753     0.8 %   (26.1 )%
Securities - available for sale   1,290,159     1,223,764     800,917     1,177,757     5.4 %   9.5 %
Securities - held to maturity   268,050     266,391     267,873     254,666     0.6 %   5.3 %
Federal Home Loan Bank stock   12,334     10,334     12,506     23,347     19.4 %   (47.2 )%
Loans held for sale   66,164     86,707     246,353     113,230     (23.7 )%   (41.6 )%
Loans receivable   7,551,563     7,421,255     7,451,148     7,325,925     1.8 %   3.1 %
Allowance for loan losses   (88,586 )   (86,527 )   (85,997 )   (81,318 )   2.4 %   8.9 %
Net loans   7,462,977     7,334,728     7,365,151     7,244,607     1.7 %   3.0 %
Accrued interest receivable   30,722     30,312     30,178     30,052     1.4 %   2.2 %
Real estate owned held for sale, net   2,427     3,040     11,081     6,147     (20.2 )%   (60.5 )%
Property and equipment, net   161,095     162,467     166,481     167,597     (0.8 )%   (3.9 )%
Goodwill   244,583     244,583     244,583     244,583     %   %
Other intangibles, net   26,813     28,488     30,162     33,724     (5.9 )%   (20.5 )%
Bank-owned life insurance   160,609     159,948     158,936     158,001     0.4 %   1.7 %
Other assets   175,389     192,155     187,160     194,085     (8.7 )%   (9.6 )%
Total assets   $ 10,199,820     $ 10,068,378     $ 9,793,668     $ 9,916,205     1.3 %   2.9 %
LIABILITIES                        
Deposits:                        
Non-interest-bearing   $ 3,254,581     $ 3,213,044     $ 3,140,451     $ 3,023,986     1.3 %   7.6 %
Interest-bearing transaction and savings accounts   4,022,909     4,064,198     3,935,630     3,687,118     (1.0 )%   9.1 %
Interest-bearing certificates   1,206,241     1,144,718     1,045,333     1,208,671     5.4 %   (0.2 )%
Total deposits   8,483,731     8,421,960     8,121,414     7,919,775     0.7 %   7.1 %
Advances from Federal Home Loan Bank at fair value   50,212     213     54,216     325,383     nm   (84.6 )%
Customer repurchase agreements and other borrowings   116,455     120,245     105,685     112,308     (3.2 )%   3.7 %
Junior subordinated debentures at fair value   96,852     96,040     95,200     93,298     0.8 %   3.8 %
Accrued expenses and other liabilities   102,511     66,201     71,369     87,441     54.8 %   17.2 %
Deferred compensation   40,208     40,315     40,074     39,483     (0.3 )%   1.8 %
Total liabilities   8,889,969     8,744,974     8,487,958     8,577,688     1.7 %   3.6 %
SHAREHOLDERS' EQUITY                        
Common stock   1,215,316     1,214,517     1,213,837     1,263,085     0.1 %   (3.8 )%
Retained earnings   94,541     110,783     95,328     63,967     (14.7 )%   47.8 %
Other components of shareholders' equity   (6 )   (1,896 )   (3,455 )   11,465     (99.7 )%   (100.1 )%
Total shareholders' equity   1,309,851     1,323,404     1,305,710     1,338,517     (1.0 )%   (2.1 )%
Total liabilities and shareholders' equity   $ 10,199,820     $ 10,068,378     $ 9,793,668     $ 9,916,205     1.3 %   2.9 %
Common Shares Issued:                        
Shares outstanding at end of period   33,278,031     33,152,864     33,193,387     34,350,560          
Common shareholders' equity per share (1)   $ 39.36     $ 39.92     $ 39.34     $ 38.97          
Common shareholders' tangible equity per share (1) (2)   $ 31.21     $ 31.68     $ 31.06     $ 30.86          
Common shareholders' tangible equity to tangible assets (2)   10.46 %   10.72 %   10.83 %   11.00 %        
Consolidated Tier 1 leverage capital ratio   11.51 %   11.79 %   11.83 %   11.85 %        


(1 ) Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2 ) Common shareholders' tangible equity excludes goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last four pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                    Percentage Change
LOANS   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016   Prior Qtr   Prior Yr Qtr
                         
Commercial real estate:                        
Owner occupied   $ 1,358,094     $ 1,361,095     $ 1,352,999     $ 1,351,015     (0.2 )%   0.5 %
Investment properties   1,975,075     2,011,618     1,986,336     1,849,123     (1.8 )%   6.8 %
Multifamily real estate   288,442     254,246     248,150     287,783     13.4 %   0.2 %
Commercial construction   144,092     141,505     124,068     105,594     1.8 %   36.5 %
Multifamily construction   111,562     114,728     124,126     97,697     (2.8 )%   14.2 %
One- to four-family construction   380,782     366,191     375,704     330,474     4.0 %   15.2 %
Land and land development:                        
Residential   147,149     151,649     170,004     156,964     (3.0 )%   (6.3 )%
Commercial   27,917     29,597     29,184     22,578     (5.7 )%   23.6 %
Commercial business   1,286,204     1,224,541     1,207,879     1,231,182     5.0 %   4.5 %
Agricultural business including secured by farmland   344,412     313,374     369,156     370,515     9.9 %   (7.0 )%
One- to four-family real estate   800,008     802,991     813,077     878,986     (0.4 )%   (9.0 )%
Consumer:                        
Consumer secured by one- to four-family real estate   527,623     493,495     493,211     485,545     6.9 %   8.7 %
Consumer-other   160,203     156,225     157,254     158,469     2.5 %   1.1 %
Total loans receivable   $ 7,551,563     $ 7,421,255     $ 7,451,148     $ 7,325,925     1.8 %   3.1 %
Restructured loans performing under their restructured terms   $ 13,531     $ 17,193     $ 18,907     $ 18,835          
Loans 30 - 89 days past due and on accrual (1)   $ 15,564     $ 22,214     $ 11,571     $ 14,447          
Total delinquent loans (including loans on non-accrual), net (2)   $ 32,961     $ 37,563     $ 30,553     $ 38,038          
Total delinquent loans / Total loans outstanding   0.44 %   0.51 %   0.41 %   0.52 %        

(1) Includes $835,000 of purchased credit-impaired loans at June 30, 2017 compared to $2.4 million at March 31, 2017, $470,000 at December 31, 2016 and $1.4 million at June 30, 2016.
(2) Delinquent loans include $2.5 million of delinquent purchased credit-impaired loans June 30, 2017 compared to $3.5 million at March 31, 2017, $1.7 million at December 31, 2016 and $4.4 million at June 30, 2016.

LOANS BY GEOGRAPHIC LOCATION   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016
    Amount   Percentage   Amount   Percentage   Amount   Percentage   Amount   Percentage
                                 
Washington   $ 3,425,627     45.3 %   $ 3,401,005     45.8 %   $ 3,433,617     46.1 %   $ 3,401,656     46.4 %
Oregon   1,532,460     20.3 %   1,493,054     20.1 %   1,505,369     20.2 %   1,461,906     20.0 %
California   1,304,194     17.3 %   1,255,597     16.9 %   1,239,989     16.6 %   1,184,392     16.2 %
Idaho   487,378     6.5 %   471,519     6.4 %   495,992     6.7 %   505,594     6.9 %
Utah   294,467     3.9 %   281,379     3.8 %   283,890     3.8 %   294,102     4.0 %
Other   507,437     6.7 %   518,701     7.0 %   492,291     6.6 %   478,275     6.5 %
Total loans   $ 7,551,563     100.0 %   $ 7,421,255     100.0 %   $ 7,451,148     100.0 %   $ 7,325,925     100.0 %


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
      Quarters Ended   Six months ended
CHANGE IN THE   Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
ALLOWANCE FOR LOAN LOSSES                    
Balance, beginning of period   $ 86,527     $ 85,997     $ 78,197     $ 85,997     $ 78,008  
Provision for loan losses   2,000     2,000     2,000     4,000     2,000  
Recoveries of loans previously charged off:                    
Commercial real estate   264     70     26     334     64  
Multifamily real estate   11             11      
Construction and land   1,024     83     124     1,107     595  
One- to four-family real estate   109     145     558     254     570  
Commercial business   171     173     622     344     1,342  
Agricultural business, including secured by farmland   19     113     160     132     177  
Consumer   101     94     249     195     456  
    1,699     678     1,739     2,377     3,204  
Loans charged off:                    
Commercial real estate   (47 )           (47 )   (180 )
One- to four-family real estate           (34 )       (34 )
Commercial business   (1,169 )   (1,626 )   (171 )   (2,795 )   (310 )
Agricultural business, including secured by farmland   (104 )   (159 )       (263 )   (567 )
Consumer   (320 )   (363 )   (413 )   (683 )   (803 )
    (1,640 )   (2,148 )   (618 )   (3,788 )   (1,894 )
Net recoveries (charge-offs)   59     (1,470 )   1,121     (1,411 )   1,310  
Balance, end of period   $ 88,586     $ 86,527     $ 81,318     $ 88,586     $ 81,318  
Net recoveries (charge-offs) / Average loans outstanding   0.001 %   (0.019 )%   0.015 %   (0.018 )%   0.018 %


ALLOCATION OF                
ALLOWANCE FOR LOAN LOSSES   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016
Specific or allocated loss allowance:                
Commercial real estate   $ 24,232     $ 20,472     $ 20,993     $ 20,149  
Multifamily real estate   1,562     1,378     1,360     1,515  
Construction and land   27,312     29,464     34,252     31,861  
One- to four-family real estate   2,010     1,974     2,238     2,204  
Commercial business   19,126     19,768     16,533     17,758  
Agricultural business, including secured by farmland   3,808     3,245     2,967     2,891  
Consumer   3,987     3,840     4,104     3,743  
Total allocated   82,037     80,141     82,447     80,121  
Unallocated   6,549     6,386     3,550     1,197  
Total allowance for loan losses   $ 88,586     $ 86,527     $ 85,997     $ 81,318  
Allowance for loan losses / Total loans outstanding   1.17 %   1.17 %   1.15 %   1.11 %
Allowance for loan losses / Non-performing loans   405 %   479 %   381 %   321 %


ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
  Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016
NON-PERFORMING ASSETS              
Loans on non-accrual status:              
Secured by real estate:              
Commercial $ 6,267     $ 6,910     $ 8,237     $ 11,753  
Multifamily     147         31  
Construction and land 1,726     1,775     1,748     1,738  
One- to four-family 2,955     3,386     2,263     3,512  
Commercial business 7,037     2,700     3,074     1,426  
Agricultural business, including secured by farmland 1,456     1,012     3,229     4,459  
Consumer 1,494     1,285     1,875     1,165  
  20,935     17,215     20,426     24,084  
Loans more than 90 days delinquent, still on accrual:              
Secured by real estate:              
Commercial         701      
Multifamily         147      
One- to four-family 754     545     1,233     896  
Commercial business 77              
Consumer 108     297     72     337  
  939     842     2,153     1,233  
Total non-performing loans 21,874     18,057     22,579     25,317  
Real estate owned (REO) 2,427     3,040     11,081     6,147  
Other repossessed assets 181     162     166     256  
Total non-performing assets $ 24,482     $ 21,259     $ 33,826     $ 31,720  
Total non-performing assets to total assets 0.24 %   0.21 %   0.35 %   0.32 %
Purchased credit-impaired loans, net $ 26,267     $ 30,501     $ 32,322     $ 45,376  


  Quarters Ended   Six months ended
REAL ESTATE OWNED Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
Balance, beginning of period $ 3,040     $ 11,081     $ 7,207     $ 11,081     $ 11,627  
Additions from loan foreclosures 46         376     46     378  
Additions from acquisitions                 400  
Additions from capitalized costs 54             54      
Proceeds from dispositions of REO (1,228 )   (9,193 )   (1,656 )   (10,421 )   (6,322 )
Gain on sale of REO 721     1,202     651     1,923     700  
Valuation adjustments in the period (206 )   (50 )   (431 )   (256 )   (636 )
Balance, end of period $ 2,427     $ 3,040     $ 6,147     $ 2,427     $ 6,147  



ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                         
DEPOSIT COMPOSITION                   Percentage Change
    Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016   Prior Qtr   Prior Yr
                         
Non-interest-bearing   $ 3,254,581     $ 3,213,044     $ 3,140,451     $ 3,023,986     1.3 %   7.6 %
Interest-bearing checking   953,227     928,232     914,484     830,625     2.7 %   14.8 %
Regular savings accounts   1,530,517     1,592,023     1,523,391     1,321,518     (3.9 )%   15.8 %
Money market accounts   1,539,165     1,543,943     1,497,755     1,534,975     (0.3 )%   0.3 %
Total interest-bearing transaction and savings accounts   4,022,909     4,064,198     3,935,630     3,687,118     (1.0 )%   9.1 %
Interest-bearing certificates   1,206,241     1,144,718     1,045,333     1,208,671     5.4 %   (0.2 )%
Total deposits   $ 8,483,731     $ 8,421,960     $ 8,121,414     $ 7,919,775     0.7 %   7.1 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016
    Amount   Percentage   Amount   Percentage   Amount   Percentage   Amount   Percentage
Washington   $ 4,615,284     54.5 %   $ 4,619,457     54.9 %   $ 4,347,644     53.6 %   $ 4,158,639     52.5 %
Oregon   1,806,639     21.3 %   1,746,143     20.7 %   1,708,973     21.0 %   1,686,160     21.3 %
California   1,445,621     17.0 %   1,469,351     17.4 %   1,469,748     18.1 %   1,485,795     18.8 %
Idaho   416,933     4.9 %   429,850     5.1 %   447,019     5.5 %   421,427     5.3 %
Utah   199,254     2.3 %   157,159     1.9 %   148,030     1.8 %   167,754     2.1 %
Total deposits   $ 8,483,731     100.0 %   $ 8,421,960     100.0 %   $ 8,121,414     100.0 %   $ 7,919,775     100.0 %


INCLUDED IN TOTAL DEPOSITS   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016
Public non-interest-bearing accounts   $ 85,760     $ 80,322     $ 92,789     $ 102,486  
Public interest-bearing transaction & savings accounts   124,075     125,921     128,976     127,045  
Public interest-bearing certificates   30,496     31,024     25,650     26,574  
Total public deposits   $ 240,331     $ 237,267     $ 247,415     $ 256,105  
Total brokered deposits   $ 250,001     $ 171,521     $ 34,074     $ 92,982  


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
    Actual   Minimum to be
categorized as
"Adequately Capitalized"
  Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF JUNE 30, 2017   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
  Total capital to risk-weighted assets   $ 1,220,389     13.68 %   $ 713,907     8.00 %   $ 892,384     10.00 %
  Tier 1 capital to risk-weighted assets   1,129,354     12.66 %   535,431     6.00 %   535,431     6.00 %
  Tier 1 leverage capital to average assets   1,129,354     11.51 %   392,603     4.00 %   n/a   n/a
  Common equity tier 1 capital to risk-weighted assets   1,005,226     11.26 %   401,573     4.50 %   n/a   n/a
Banner Bank:                        
  Total capital to risk-weighted assets   1,073,818     12.31 %   697,992     8.00 %   872,489     10.00 %
  Tier 1 capital to risk-weighted assets   985,051     11.29 %   523,494     6.00 %   697,992     8.00 %
  Tier 1 leverage capital to average assets   985,051     10.32 %   381,966     4.00 %   477,458     5.00 %
  Common equity tier 1 capital to risk-weighted assets   985,051     11.29 %   392,620     4.50 %   567,118     6.50 %
Islanders Bank:                        
  Total capital to risk-weighted assets   31,171     16.29 %   15,304     8.00 %   19,131     10.00 %
  Tier 1 capital to risk-weighted assets   28,903     15.11 %   11,478     6.00 %   15,304     8.00 %
  Tier 1 leverage capital to average assets   28,903     11.12 %   10,394     4.00 %   12,993     5.00 %
  Common equity tier 1 capital to risk-weighted assets   28,903     15.11 %   8,609     4.50 %   12,435     6.50 %



ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
                       
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  June 30, 2017   March 31, 2017   June 30, 2016
  Average Balance Interest and Dividends Yield / Cost(3)   Average Balance Interest and Dividends Yield / Cost(3)   Average Balance Interest and Dividends Yield / Cost(3)
Interest-earning assets:                      
Mortgage loans $ 5,987,295   $ 74,459   4.99 %   $ 6,104,779   $ 72,549   4.82 %   $ 5,715,740   $ 68,914   4.85 %
Commercial/agricultural loans 1,503,548   18,179   4.85 %   1,464,532   16,546   4.58 %   1,504,969   17,816   4.76 %
Consumer and other loans 138,724   2,157   6.24 %   138,033   2,193   6.44 %   140,355   2,205   6.32 %
Total loans(1) 7,629,567   94,795   4.98 %   7,707,344   91,288   4.80 %   7,361,064   88,935   4.86 %
Mortgage-backed securities 1,067,255   6,239   2.34 %   842,071   4,647   2.24 %   1,004,044   5,274   2.11 %
Other securities 471,894   3,192   2.71 %   453,793   3,037   2.71 %   450,528   2,931   2.62 %
Interest-bearing deposits with banks 54,051   139   1.03 %   32,195   93   1.17 %   95,668   101   0.42 %
FHLB stock 14,472   71   1.97 %   15,550   31   0.81 %   18,911   80   1.70 %
Total investment securities 1,607,672   9,641   2.41 %   1,343,609   7,808   2.36 %   1,569,151   8,386   2.15 %
Total interest-earning assets 9,237,239   104,436   4.53 %   9,050,953   99,096   4.44 %   8,930,215   97,321   4.38 %
Non-interest-earning assets 896,136         923,165         903,706      
Total assets $ 10,133,375         $ 9,974,118         $ 9,833,921      
Deposits:                      
Interest-bearing checking accounts $ 927,375   210   0.09 %   $ 896,764   200   0.09 %   $ 789,626   185   0.09 %
Savings accounts 1,553,019   527   0.14 %   1,557,734   523   0.14 %   1,329,104   431   0.13 %
Money market accounts 1,534,551   689   0.18 %   1,522,470   651   0.17 %   1,577,320   811   0.21 %
Certificates of deposit 1,200,435   1,756   0.59 %   1,089,316   1,417   0.53 %   1,244,796   1,344   0.43 %
Total interest-bearing deposits 5,215,380   3,182   0.24 %   5,066,284   2,791   0.22 %   4,940,846   2,771   0.23 %
Non-interest-bearing deposits 3,158,727     %   3,148,520     %   3,029,890     %
Total deposits 8,374,107   3,182   0.15 %   8,214,804   2,791   0.14 %   7,970,736   2,771   0.14 %
Other interest-bearing liabilities:                      
FHLB advances 103,848   301   1.16 %   130,274   273   0.85 %   214,290   339   0.64 %
Other borrowings 116,513   83   0.29 %   108,091   74   0.28 %   111,987   78   0.28 %
Junior subordinated debentures 140,212   1,164   3.33 %   140,212   1,104   3.19 %   140,212   985   2.83 %
Total borrowings 360,573   1,548   1.72 %   378,577   1,451   1.55 %   466,489   1,402   1.21 %
Total funding liabilities 8,734,680   4,730   0.22 %   8,593,381   4,242   0.20 %   8,437,225   4,173   0.20 %
Other non-interest-bearing liabilities(2) 56,175         58,489         62,858      
Total liabilities 8,790,855         8,651,870         8,500,083      
Shareholders' equity 1,342,520         1,322,248         1,333,838      
Total liabilities and shareholders' equity $ 10,133,375         $ 9,974,118         $ 9,833,921      
Net interest income/rate spread   $ 99,706   4.31 %     $ 94,854   4.24 %     $ 93,148   4.18 %
Net interest margin     4.33 %       4.25 %       4.20 %
Additional Key Financial Ratios:                      
Return on average assets     1.01 %       0.97 %       0.86 %
Return on average equity     7.60 %       7.30 %       6.32 %
Average equity/average assets     13.25 %       13.26 %       13.56 %
Average interest-earning assets/average interest-bearing liabilities     165.66 %       166.23 %       165.15 %
Average interest-earning assets/average funding liabilities     105.75 %       105.32 %       105.84 %
Non-interest income/average assets     0.89 %       0.85 %       0.84 %
Non-interest expense/average assets     3.24 %       3.17 %       3.27 %
Efficiency ratio(4)     67.06 %       67.48 %       70.27 %
Adjusted efficiency ratio(5)     65.42 %       65.84 %       65.33 %


(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 FHLB advances and junior subordinated debentures.
(3 ) Yields and costs have not been adjusted for the effect of tax-exempt interest.
(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.  Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments.  Adjusted non-interest expense excludes acquisition related costs, amortization of core deposit intangibles (CDI), real estate operations expense, and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
(rates / ratios annualized)              
               
ANALYSIS OF NET INTEREST SPREAD Six months ended
  June 30, 2017   June 30, 2016
  Average Balance Interest and Dividends Yield/Cost(3)   Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:              
Mortgage loans $ 6,045,712   $ 147,008   4.90 %   $ 5,711,811   $ 137,658   4.85 %
Commercial/agricultural loans 1,484,148   34,725   4.72 %   1,488,304   33,841   4.57 %
Consumer and other loans 138,380   4,350   6.34 %   140,858   4,394   6.27 %
Total loans(1) 7,668,240   186,083   4.89 %   7,340,973   175,893   4.82 %
Mortgage-backed securities 955,285   10,886   2.30 %   1,004,427   10,664   2.14 %
Other securities 462,894   6,229   2.71 %   439,012   5,702   2.61 %
Interest-bearing deposits with banks 43,183   232   1.08 %   99,721   202   0.41 %
FHLB stock 15,008   102   1.37 %   18,221   161   1.78 %
Total investment securities 1,476,370   17,449   2.38 %   1,561,381   16,729   2.15 %
Total interest-earning assets 9,144,610   203,532   4.49 %   8,902,354   192,622   4.35 %
Non-interest-earning assets 909,576         898,887      
Total assets $ 10,054,186         $ 9,801,241      
Deposits:              
Interest-bearing checking accounts $ 912,154   410   0.09 %   $ 861,849   382   0.09 %
Savings accounts 1,555,363   1,050   0.14 %   1,318,236   853   0.13 %
Money market accounts 1,528,545   1,340   0.18 %   1,598,922   1,673   0.21 %
Certificates of deposit 1,145,182   3,173   0.56 %   1,286,769   2,809   0.44 %
Total interest-bearing deposits 5,141,244   5,973   0.23 %   5,065,776   5,717   0.23 %
Non-interest-bearing deposits 3,153,652     %   2,909,131     %
Total deposits 8,294,896   5,973   0.15 %   7,974,907   5,717   0.14 %
Other interest-bearing liabilities:              
FHLB advances 116,988   574   0.99 %   191,747   618   0.65 %
Other borrowings 112,325   157   0.28 %   107,426   153   0.29 %
Junior subordinated debentures 140,212   2,268   3.26 %   140,212   1,944   2.79 %
Total borrowings 369,525   2,999   1.64 %   439,385   2,715   1.24 %
Total funding liabilities 8,664,421   8,972   0.21 %   8,414,292   8,432   0.20 %
Other non-interest-bearing liabilities(2) 57,325         62,936      
Total liabilities 8,721,746         8,477,228      
Shareholders' equity 1,332,440         1,324,013      
Total liabilities and shareholders' equity $ 10,054,186         $ 9,801,241      
Net interest income/rate spread   $ 194,560   4.28 %     $ 184,190   4.15 %
Net interest margin     4.29 %       4.16 %
Additional Key Financial Ratios:              
Return on average assets     0.99 %       0.79 %
Return on average equity     7.45 %       5.88 %
Average equity/average assets     13.25 %       13.51 %
Average interest-earning assets/average interest-bearing liabilities     165.94 %       161.71 %
Average interest-earning assets/average funding liabilities     105.54 %       105.80 %
Non-interest income/average assets     0.87 %       0.83 %
Non-interest expense/average assets     3.21 %       3.36 %
Efficiency ratio(4)     67.27 %       72.96 %
Adjusted efficiency ratio(5)     65.63 %       66.08 %


(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 FHLB advances and junior subordinated debentures.
(3 ) Yields and costs have not been adjusted for the effect of tax-exempt interest.
(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.  Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments.  Adjusted non-interest expense excludes acquisition related costs, amortization of CDI, real estate operations expense, and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION                  
(dollars in thousands)                  
                   
* Non-GAAP Financial Measures                  
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.
                   
REVENUE FROM CORE OPERATIONS Quarters Ended   Six months ended
  Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
Net interest income before provision for loan losses $ 99,706     $ 94,854     $ 93,148     $ 194,560     $ 184,190  
Total non-interest income 22,469     20,845     20,537     43,313     40,497  
Total GAAP revenue 122,175     115,699     113,685     237,873     224,687  
Exclude net loss (gain) on sale of securities 54     (13 )   380     41     359  
Exclude change in valuation of financial instruments carried at fair value 650     688     377     1,338     348  
Revenue from core operations (non-GAAP) $ 122,879     $ 116,374     $ 114,442     $ 239,252     $ 225,394  


NON-INTEREST INCOME FROM CORE OPERATIONS   Quarters Ended   Six months ended
    Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
Total non-interest income (GAAP)   $ 22,469     $ 20,845     $ 20,537     $ 43,313     $ 40,497  
Exclude net loss (gain) on sale of securities   54     (13 )   380     41     359  
Exclude change in valuation of financial instruments carried at fair value   650     688     377     1,338     348  
Non-interest income from core operations (non-GAAP)   $ 23,173     $ 21,520     $ 21,294     $ 44,692     $ 41,204  


EARNINGS FROM CORE OPERATIONS   Quarters Ended   Six months ended
    Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
Net income (GAAP)   $ 25,454     $ 23,793     $ 20,957     $ 49,247     $ 38,731  
Exclude net loss (gain) on sale of securities   54     (13 )   380     41     359  
Exclude change in valuation of financial instruments carried at fair value   650     688     377     1,338     348  
Exclude acquisition-related costs           2,412         9,224  
Exclude related tax benefit   (253 )   (243 )   (1,141 )   (496 )   (3,557 )
Total earnings from core operations (non-GAAP)   $ 25,905     $ 24,225     $ 22,985     $ 50,130     $ 45,105  
                     
Diluted earnings per share (GAAP)   $ 0.77     $ 0.72     $ 0.61     $ 1.49     $ 1.14  
Diluted core earnings per share (non-GAAP)   $ 0.78     $ 0.73     $ 0.67     $ 1.52     $ 1.32  


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Six months ended
    Jun 30, 2017   Mar 31, 2017   Jun 30, 2016   Jun 30, 2017   Jun 30, 2016
Non-interest expense (GAAP)   $ 81,930     $ 78,078     $ 79,887     $ 160,007     $ 163,921  
Exclude acquisition-related costs           (2,412 )       (9,224 )
Exclude CDI amortization   (1,624 )   (1,624 )   (1,808 )   (3,248 )   (3,615 )
Exclude state/municipal tax expense   (279 )   (799 )   (770 )   (1,078 )   (1,608 )
Exclude REO gain (loss)   363     966     (137 )   1,329     (534 )
Adjusted non-interest expense (non-GAAP)   $ 80,390     $ 76,621     $ 74,760     $ 157,010     $ 148,940  
                     
Net interest income before provision for loan losses (GAAP)   $ 99,706     $ 94,854     $ 93,148     $ 194,560     $ 184,190  
Non-interest income (GAAP)   22,469     20,845     20,537     43,313     40,497  
Total revenue   122,175     115,699     113,685     237,873     224,687  
Exclude net (gain) loss on sale of securities   54     (13 )   380     41     359  
Exclude net change in valuation of financial instruments carried at fair value   650     688     377     1,338     348  
Adjusted revenue (non-GAAP)   $ 122,879     $ 116,374     $ 114,442     $ 239,252     $ 225,394  
                     
Efficiency ratio (GAAP)   67.06 %   67.48 %   70.27 %   67.27 %   72.96 %
Adjusted efficiency ratio (non-GAAP)   65.42 %   65.84 %   65.33 %   65.63 %   66.08 %


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Jun 30, 2016
Shareholders' equity (GAAP)   $ 1,309,851     $ 1,323,404     $ 1,305,710     $ 1,338,517  
Exclude goodwill and other intangible assets, net   271,396     273,071     274,745     278,307  
Tangible common shareholders' equity (non-GAAP)   $ 1,038,455     $ 1,050,333     $ 1,030,965     $ 1,060,210  
                 
Total assets (GAAP)   $ 10,199,820     $ 10,068,378     $ 9,793,668     $ 9,916,205  
Exclude goodwill and other intangible assets, net   271,396     273,071     274,745     278,307  
Total tangible assets (non-GAAP)   $ 9,928,424     $ 9,795,307     $ 9,518,923     $ 9,637,898  
Common shareholders' equity to total assets (GAAP)   12.84 %   13.14 %   13.33 %   13.50 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   10.46 %   10.72 %   10.83 %   11.00 %
                 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE                
Tangible common shareholders' equity   $ 1,038,455     $ 1,050,333     $ 1,030,965     $ 1,060,210  
Common shares outstanding at end of period   33,278,031     33,152,864     33,193,387     34,350,560  
Common shareholders' equity (book value) per share (GAAP)   $ 39.36     $ 39.92     $ 39.34     $ 38.97  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 31.21     $ 31.68     $ 31.06     $ 30.86  


CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO
LLOYD W. BAKER, CFO
(509) 527-3636

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