Market Overview

Banner Corporation Reports Third Quarter Net Income of $25.1 Million, or $0.76 per Diluted Share; Highlighted by Strong Loan and Core Deposit Growth

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WALLA WALLA, Wash., Oct. 25, 2017 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported that year-over-year revenue growth contributed to solid third quarter and year-to-date 2017 operating results.  Net income in the third quarter of 2017 was $25.1 million, or $0.76 per diluted share, compared to $25.5 million, or $0.77 per diluted share, in the preceding quarter and increased 5% compared to $23.9 million, or $0.70 per diluted share, in the third quarter a year ago.  There were no acquisition-related expenses in the third quarter of 2017 or the preceding quarter.  In the third quarter a year ago, acquisition-related expenses totaled $1.7 million.  In the first nine months of 2017, net income increased 19% to $74.3 million, or $2.25 per diluted share, compared to $62.6 million, or $1.83 per diluted share, in the first nine months of 2016.  There were no acquisition-related costs in the first nine months of 2017, compared to $10.9 million in acquisition-related expenses in the first nine months of 2016.

"Our third quarter financial results were highlighted by strong loan and core deposit growth and solid net interest income reflecting earning asset expansion and our strong net interest margin," stated Mark J. Grescovich, President and Chief Executive Officer.  "While we experienced a significant decrease in accretion income on loans acquired in merger transactions compared to recent quarters, strong business activity resulted in both loan and core deposit growth for the quarter and year to date, generating meaningful increases in contractual net interest income and deposit fees.  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.  Although increasing regulatory costs are a significant headwind, we are continuing to successfully execute our strategies to deliver revenue growth, sustainable profitability and increasing value to our shareholders while still maintaining our moderate risk profile."

At September 30, 2017, Banner Corporation had $10.44 billion in assets, $7.77 billion in net loans and $8.54 billion in deposits.  Banner operates 178 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2017 Highlights

  • Net income was $25.1 million, compared to $25.5 million in the preceding quarter and increased 5% compared to $23.9 million in the third quarter of 2016.
  • Return on average assets was 0.97% in the current quarter, compared to 1.01% in the preceding quarter and 0.96% in the same quarter a year ago.
  • Revenues from core operations* were $120.8 million, compared to $122.9 million in the preceding quarter, and increased 3% compared to $117.5 million in the third quarter a year ago.
  • Net interest margin was 4.22% for the current quarter, compared to 4.33% in the preceding quarter and 4.15% in the third quarter a year ago.
  • Deposit fees and other service charges were $13.3 million, compared to $13.2 million in the preceding quarter and a 3% increase compared to $12.9 million in the third quarter a year ago.
  • Provision for loan losses was $2.0 million, increasing the allowance for loan losses to $89.1 million or 1.15% of total loans.
  • Net loans receivable increased 3% to $7.69 billion at September 30, 2017, compared to $7.46 billion at June 30, 2017, and increased 5% compared to $7.31 billion a year ago.
  • Core deposits increased 2% during the current quarter and increased 6% compared to September 30, 2016.
  • Core deposits represented 87% of total deposits at September 30, 2017.
  • Quarterly dividends to shareholders were $0.25 per share.  In addition, Banner paid a special dividend of $1.00 per share on July 18, 2017.
  • Common shareholders' tangible equity per share* was $31.79 at September 30, 2017, compared to $31.21 at the preceding quarter end and $31.14 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 10.39% at September 30, 2017, compared to 10.46% at the preceding quarter end and 11.03% 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 third quarter net interest income, before the provision for loan losses, increased modestly to $100.2 million, compared to $99.7 million in the preceding quarter and increased 7% compared to $93.7 million in the third quarter a year ago.  In the first nine months of 2017, net interest income, before the provision for loan losses, increased 6% to $294.8 million compared to $277.9 million in the first nine months of 2016.

"Our net interest margin decreased compared to the preceding quarter, largely reflecting decreased purchased loan discount accretion," said Grescovich.  Banner's net interest margin was 4.22% for the third quarter of 2017, compared to 4.33% in the preceding quarter and reflected a seven basis point improvement compared to 4.15% in the third quarter a year ago.  Acquisition accounting adjustments, principally loan discount accretion, added 10 basis points to the net interest margin in the current quarter compared to 15 basis points in the preceding quarter and 11 basis points in the third quarter a year ago.  In the first nine months of 2017, Banner's net interest margin improved 11 basis points to 4.27% compared to 4.16% in the first nine months of 2016.  Purchase accounting adjustments added 12 basis points to the net interest margin for the first nine months of 2017 compared to 14 basis points for the first nine months of 2016.  The total purchase discount for acquired loans was $23.4 million at September 30, 2017, down from $25.8 million at June 30, 2017 and $34.9 million a year ago due to discount accretion.

Average interest-earning asset yields decreased ten basis points to 4.43% compared to 4.53% for the preceding quarter and increased nine basis points compared to 4.34% in the third quarter a year ago.  Average loan yields decreased ten basis points to 4.88% compared to the preceding quarter and increased ten basis points from the third quarter a year ago.  Loan discount accretion added 12 basis points to loan yields in the third quarter, compared to 18 basis points in the preceding quarter and 15 basis points in the third quarter a year ago.  Deposit costs were 0.15% in the third quarter, the same as in the preceding quarter and a one basis point increase compared to the third quarter a year ago.  The total cost of funds increased one basis point to 0.23% during the third quarter compared to 0.22% for the preceding quarter and 0.19% for the third quarter a year ago.

"While our asset quality metrics remain strong, we modestly increased the loan loss allowance during the quarter and expect to continue adding to the allowance as we strive to maintain solid reserves and a moderate risk profile," said Grescovich.  Largely as a result of the addition of new loans and the renewal of acquired loans out of the discounted loan portfolio as well as net charge-offs, Banner recorded a $2.0 million provision for loan losses during the third quarter, the same as in the preceding quarter and the year ago quarter.

Deposit fees and other service charges were $13.3 million in the third quarter, a modest increase compared to $13.2 million in the preceding quarter and a 3% increase compared to $12.9 million in the third quarter a year ago.

Banner's mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $4.5 million in the third quarter compared to $6.8 million in the preceding quarter and $8.1 million in the third quarter of 2016.  Sales of one- to four-family loans in the current quarter resulted in gains of $3.7 million compared to $4.4 million in the preceding quarter.  The decrease was due to a decline in spreads on one- to four-family loan originations and sales during the quarter.  Home purchase activity accounted for 77% of third quarter one- to four-family mortgage loan originations.  Sales of multifamily loans in the current quarter resulted in gains of $268,000, while sales of multifamily loans generated $1.8 million of gains in the preceding quarter.  The decline in multifamily gain on sale income was due to a combination of declining market spreads on sold loans in the current quarter and the transition to hedge accounting in previous quarter.

Third quarter 2017 results included a $493,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value that was partially offset by a $270,000 net gain on the sale of securities.  In the preceding quarter, results included a $650,000 net loss for fair value adjustments and a $54,000 net loss on the sale of securities.  In the third quarter a year ago, results included a $1.1 million net loss for fair value adjustments that was partially offset by an $891,000 net gain on the sale of securities.

Total revenues decreased slightly to $120.5 million for the third quarter of 2017, compared to $122.2 million in the preceding quarter but increased 3% compared to $117.2 million in the third quarter a year ago.  In the first nine months of 2017, total revenues increased 5% to $358.4 million, compared to $341.9 million in the first nine 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) decreased to $120.8 million in the third quarter of 2017, compared to $122.9 million in the preceding quarter, but increased 3% compared to $117.5 million in the third quarter of 2016.  In the first nine months of 2017, revenues from core operations* increased 5% to $360.0 million, compared to $342.8 million in the first nine 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 $20.3 million in the third quarter of 2017, compared to $22.5 million in the second quarter of 2017 and $23.5 million in the third quarter a year ago.  In the first nine months of 2017, total non-interest income was $63.7 million compared to $64.0 million in the first nine 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 $20.6 million in the third quarter of 2017, compared to $23.2 million for the second quarter of 2017 and $23.7 million in the third quarter a year ago.  In the first nine months of 2017, non-interest income from core operations* was $65.3 million, compared to $64.9 million in the first nine months of 2016.

Banner's total non-interest expenses were $82.6 million in the third quarter of 2017, compared to $81.9 million in the preceding quarter and $79.1 million in the third 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 third quarter a year ago largely due to enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out as a result of crossing the $10 billion asset threshold.  There were no acquisition-related expenses in the current quarter or in the preceding quarter, compared to $1.7 million in the third quarter a year ago.  In the first nine months of 2017, non-interest expense was $242.6 million compared to $243.0 million in the first nine months of 2016.  The first nine months of 2016 included $10.9 million of acquisition-related expenses.  There were no acquisition-related expenses in the first nine months of 2017.

For the third quarter of 2017, Banner recorded $10.9 million in state and federal income tax expense for an effective tax rate of 30.3%, which reflects normal statutory tax rates reduced by the effect of tax-exempt income, certain tax credits and  a $1.3 million annual return to provision adjustment related to filing our federal and state income tax returns.

Balance Sheet Review

Banner's total assets increased to $10.44 billion at September 30, 2017, from $10.20 billion at June 30, 2017 and $9.84 billion a year ago.  The total of securities and interest-bearing deposits held at other banks was $1.68 billion at September 30, 2017, compared to $1.66 billion at June 30, 2017 and $1.16 billion at December 31, 2016.  The increase in the securities portfolio during the year reflects Banner's leveraging strategy as it crossed the $10 billion in assets threshold in 2017.  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 3.6 years at September 30, 2017, compared to 3.8 years at December 31, 2016 and 2.9 years at September 30, 2016.

"Net loans increased $222.4 million during the quarter and increased 5% year over year, with solid production in targeted loan types, including commercial business, commercial real estate, construction and development loans, residential real estate and consumer loans," said Grescovich.  "We see significant potential for growth in our loan origination pipelines due to the robust economic activity in the markets that we serve, particularly in the Pacific Northwest."

Net loans receivable increased 3% to $7.69 billion at September 30, 2017, compared to $7.46 billion at June 30, 2017, and increased 5% compared to $7.31 billion a year ago.  Commercial real estate and multifamily real estate loans increased slightly to $3.67 billion at September 30, 2017, compared to $3.62 billion at June 30, 2017, and increased 4% compared to $3.53 billion a year ago.  Commercial business loans increased 2% to $1.31 billion at September 30, 2017, compared to $1.29 billion three months earlier and increased 10% compared to $1.19 billion a year ago.  Agricultural business loans declined to $339.9 million at September 30, 2017, compared to $344.4 million three months earlier and $383.3 million a year ago.  Total construction, land and land development loans increased 8% to $878.4 million at September 30, 2017, compared to $811.5 million at June 30, 2017, and increased 10% compared to $797.3 million a year earlier.  Consumer loans increased to $701.2 million at September 30, 2017, compared to $687.8 million at June 30, 2017, and increased 7% compared to $657.2 million a year ago largely as a result of a successful second quarter campaign to generate additional home equity lines of credit.  One- to four-family loans increased $69.5 million during the quarter to $869.6 million as a result of an increase in the amount of loans originated for the portfolio compared to loans sold in the secondary market.

Loans held for sale increased to $71.9 million at September 30, 2017, compared to $66.2 million at June 30, 2017, but decreased compared to $123.1 million at September 30, 2016.  The volume of residential mortgage loans sold was $141.0 million in the current quarter compared to $131.0 million in the preceding quarter.  Banner sold $86.0 million of multifamily loans during the quarter ended September 30, 2017 and $114.8 million during the preceding quarter.  Loans held for sale at September 30, 2017 included $47.0 million of multifamily loans and $24.9 million of one- to four-family loans.

Total deposits were $8.54 billion at September 30, 2017, a modest increase compared to $8.48 billion at June 30, 2017, and a 5% increase compared to $8.11 billion a year ago, as strong core deposit growth was partially offset by continuing declines in certificates of deposit.  Non-interest-bearing account balances were $3.38 billion at September 30, 2017, compared to $3.25 billion at June 30, 2017 and increased 6% compared to $3.19 billion a year ago.  Interest-bearing transaction and savings accounts were $4.06 billion at September 30, 2017, compared to $4.02 billion at June 30, 2017 and increased 7% compared to $3.80 billion a year ago.  Certificates of deposit were $1.10 billion at September 30, 2017, compared to $1.21 billion at June 30, 2017 and $1.12 billion a year earlier.  Brokered deposits totaled $171.7 million at September 30, 2017, compared to $250.0 million at June 30, 2017 and $60.3 million a year ago.  The increase in brokered deposits compared to a year ago provided funding for the purchase of investment securities in connection with Banner's leveraging strategy subsequent to December 31, 2016.

Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) increased 2% during the current quarter and increased 6% compared to September 30, 2016, reflecting additional account growth as well as increased balances from existing clients.  Core deposits represented 87% of total deposits September 30, 2017 compared to 86% of total deposits both at June 30, 2017 and a year earlier.  The average cost of deposits was 0.15% for the quarter ended September 30, 2017, the same as in the preceding quarter and a one basis point increase compared to the quarter ended September 30, 2016.

At September 30, 2017, total common shareholders' equity was $1.33 billion, or $39.90 per share, compared to $1.31 billion at June 30, 2017 and $1.33 billion a year ago.  At September 30, 2017, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.06 billion, or 10.39% of tangible assets*, compared to $1.04 billion, or 10.46% of tangible assets, at June 30, 2017 and $1.05 billion, or 11.03% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $31.79 at September 30, 2017, compared to $31.14 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 September 30, 2017, Banner Corporation's common equity Tier 1 capital ratio was 11.16%, its Tier 1 leverage capital to average assets ratio was 11.49%, and its total capital to risk-weighted assets ratio was13.52%.

Credit Quality

The allowance for loan losses was $89.1 million at September 30, 2017, or 1.15% of total loans outstanding and 296% of non-performing loans compared to $84.2 million at September 30, 2016, or 1.14% of total loans outstanding and 309% of non-performing loans.  Banner had net charge-offs of $1.5 million in the third quarter compared to net recoveries of $59,000 in the preceding quarter and net recoveries of $902,000 in the third 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, as well as the net charge offs, 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 $30.1 million at September 30, 2017, compared to $21.9 million at June 30, 2017 and $27.3 million a year ago.  Real estate owned and other repossessed assets were $1.6 million at September 30, 2017, compared to $2.6 million at June 30, 2017 and $4.9 million a year ago.

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw Bank in 2015 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.

Banner's non-performing assets were $31.7 million, or 0.30% of total assets, at September 30, 2017, compared to $24.5 million, or 0.24% of total assets, at June 30, 2017 and $32.2 million, or 0.33% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $23.2 million at September 30, 2017, compared to $26.3 million at June 30, 2017 and $38.7 million a year ago.

Subsequent Event

On October 6, 2017, Banner Bank completed the sale of its seven branches and related assets and liabilities in Utah to People's Intermountain Bank, a banking subsidiary of People's Utah Bancorp (NASDAQ:PUB).  Under the terms of the purchase and assumption agreement, the sale included approximately $255 million in loans and $160 million in deposits.  The deposit premium is estimated to be approximately $13.8 million based on average deposits at closing.

Conference Call

Banner will host a conference call on Thursday, October 26, 2017, at 8:00 a.m. PDT, to discuss its third 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 10112453, or at www.bannerbank.com.

About the Company

Banner Corporation is a $10.4 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 "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 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   Nine months ended
(in thousands except shares and per share data)   Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
                     
INTEREST INCOME:                    
Loans receivable   $ 95,221     $ 94,795     $ 89,805     $ 281,304     $ 265,697  
Mortgage-backed securities   6,644     6,239     4,803     17,529     15,467  
Securities and cash equivalents   3,413     3,402     3,241     9,976     9,306  
    105,278     104,436     97,849     308,809     290,470  
INTEREST EXPENSE:                    
Deposits   3,189     3,182     2,784     9,162     8,501  
Federal Home Loan Bank advances   569     301     256     1,142     874  
Other borrowings   84     83     82     241     234  
Junior subordinated debentures   1,226     1,164     1,019     3,494     2,962  
    5,068     4,730     4,141     14,039     12,571  
Net interest income before provision for loan losses   100,210     99,706     93,708     294,770     277,899  
PROVISION FOR LOAN LOSSES   2,000     2,000     2,000     6,000     4,000  
Net interest income   98,210     97,706     91,708     288,770     273,899  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   13,316     13,238     12,927     38,739     36,957  
Mortgage banking operations   4,498     6,754     8,141     15,854     20,409  
Bank owned life insurance   1,043     1,461     1,333     3,599     3,646  
Miscellaneous   1,705     1,720     1,344     7,062     3,936  
    20,562     23,173     23,745     65,254     64,948  
Net gain (loss) on sale of securities   270     (54 )   891     230     531  
Net change in valuation of financial instruments carried at fair value   (493 )   (650 )   (1,124 )   (1,831 )   (1,472 )
Total non-interest income   20,339     22,469     23,512     63,653     64,007  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   48,931     49,019     44,758     144,014     136,497  
Less capitalized loan origination costs   (4,331 )   (4,598 )   (4,953 )   (13,245 )   (14,110 )
Occupancy and equipment   11,737     12,045     10,979     35,778     32,419  
Information / computer data services   4,420     4,100     4,836     12,513     14,607  
Payment and card processing services   5,839     5,792     5,878     16,651     16,164  
Professional services   3,349     3,732     2,258     12,233     5,736  
Advertising and marketing   2,130     1,766     2,282     5,225     6,489  
Deposit insurance   1,101     1,071     890     3,438     3,539  
State/municipal business and use taxes   780     279     956     1,857     2,564  
Real estate operations   240     (363 )   (21 )   (1,089 )   513  
Amortization of core deposit intangibles   1,542     1,624     1,724     4,790     5,339  
Miscellaneous   6,851     7,463     7,785     20,432     22,311  
    82,589     81,930     77,372     242,597     232,068  
Acquisition related expenses           1,720         10,945  
Total non-interest expense   82,589     81,930     79,092     242,597     243,013  
Income before provision for income taxes   35,960     38,245     36,128     109,826     94,893  
PROVISION FOR INCOME TAXES   10,883     12,791     12,277     35,502     32,312  
NET INCOME   $ 25,077     $ 25,454     $ 23,851     $ 74,324     $ 62,581  
Earnings per share available to common shareholders:                    
Basic   $ 0.76     $ 0.77     $ 0.70     $ 2.25     $ 1.84  
Diluted   $ 0.76     $ 0.77     $ 0.70     $ 2.25     $ 1.83  
Cumulative dividends declared per common share   $ 0.25     $ 1.25     $ 0.23     $ 1.75     $ 0.65  
Weighted average common shares outstanding:                    
Basic   32,982,532     32,982,126     34,045,225     32,966,214     34,050,459  
Diluted   33,079,099     33,051,527     34,124,611     33,061,172     34,104,875  
(Decrease) increase in common shares outstanding   (23,247 )   125,167     (483,249 )   61,397     (374,944 )


FINANCIAL CONDITION                   Percentage Change
(in thousands except shares and per share data)   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016   Prior Qtr   Prior Yr Qtr
                         
ASSETS                        
Cash and due from banks   $ 192,278     $ 196,178     $ 177,083     $ 161,710     (2.0 )%   18.9 %
Interest-bearing deposits   49,488     77,370     70,636     84,207     (36.0 )%   (41.2 )%
Total cash and cash equivalents   241,766     273,548     247,719     245,917     (11.6 )%   (1.7 )%
Securities - trading   23,466     24,950     24,568     30,889     (5.9 )%   (24.0 )%
Securities - available for sale   1,339,057     1,290,159     800,917     1,006,414     3.8 %   33.1 %
Securities - held to maturity   264,752     268,050     267,873     271,975     (1.2 )%   (2.7 )%
Federal Home Loan Bank stock   20,854     12,334     12,506     12,826     69.1 %   62.6 %
Loans held for sale   71,905     66,164     246,353     123,144     8.7 %   (41.6 )%
Loans receivable   7,774,449     7,551,563     7,451,148     7,398,637     3.0 %   5.1 %
Allowance for loan losses   (89,100 )   (88,586 )   (85,997 )   (84,220 )   0.6 %   5.8 %
Net loans   7,685,349     7,462,977     7,365,151     7,314,417     3.0 %   5.1 %
Accrued interest receivable   33,837     30,722     30,178     30,345     10.1 %   11.5 %
Real estate owned held for sale, net   1,496     2,427     11,081     4,717     (38.4 )%   (68.3 )%
Property and equipment, net   159,893     161,095     166,481     167,621     (0.7 )%   (4.6 )%
Goodwill   244,583     244,583     244,583     244,583     %   %
Other intangibles, net   25,219     26,813     30,162     31,934     (5.9 )%   (21.0 )%
Bank-owned life insurance   161,648     160,609     158,936     158,831     0.6 %   1.8 %
Other assets   169,261     175,389     187,160     197,415     (3.5 )%   (14.3 )%
Total assets   $ 10,443,086     $ 10,199,820     $ 9,793,668     $ 9,841,028     2.4 %   6.1 %
LIABILITIES                        
Deposits:                        
Non-interest-bearing   $ 3,379,841     $ 3,254,581     $ 3,140,451     $ 3,190,293     3.8 %   5.9 %
Interest-bearing transaction and savings accounts   4,058,435     4,022,909     3,935,630     3,798,668     0.9 %   6.8 %
Interest-bearing certificates   1,100,574     1,206,241     1,045,333     1,123,011     (8.8 )%   (2.0 )%
Total deposits   8,538,850     8,483,731     8,121,414     8,111,972     0.6 %   5.3 %
Advances from Federal Home Loan Bank at fair value   263,349     50,212     54,216     62,342     424.5 %   322.4 %
Customer repurchase agreements and other borrowings   103,713     116,455     105,685     108,911     (10.9 )%   (4.8 )%
Junior subordinated debentures at fair value   97,280     96,852     95,200     94,364     0.4 %   3.1 %
Accrued expenses and other liabilities   72,604     102,511     71,369     92,783     (29.2 )%   (21.7 )%
Deferred compensation   40,279     40,208     40,074     39,385     0.2 %   2.3 %
Total liabilities   9,116,075     8,889,969     8,487,958     8,509,757     2.5 %   7.1 %
SHAREHOLDERS' EQUITY                        
Common stock   1,215,482     1,215,316     1,213,837     1,243,205     %   (2.2 )%
Retained earnings   111,405     94,541     95,328     80,053     17.8 %   39.2 %
Other components of shareholders' equity   124     (6 )   (3,455 )   8,013     nm   (98.5 )%
Total shareholders' equity   1,327,011     1,309,851     1,305,710     1,331,271     1.3 %   (0.3 )%
Total liabilities and shareholders' equity   $ 10,443,086     $ 10,199,820     $ 9,793,668     $ 9,841,028     2.4 %   6.1 %
Common Shares Issued:                        
Shares outstanding at end of period   33,254,784     33,278,031     33,193,387     33,867,311          
Common shareholders' equity per share (1)   $ 39.90     $ 39.36     $ 39.34     $ 39.31          
Common shareholders' tangible equity per share (1) (2)   $ 31.79     $ 31.21     $ 31.06     $ 31.14          
Common shareholders' tangible equity to tangible assets (2)   10.39 %   10.46 %   10.83 %   11.03 %        
Consolidated Tier 1 leverage capital ratio   11.49 %   11.51 %   11.83 %   11.40 %        


(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 two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                    Percentage Change
LOANS   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016   Prior Qtr   Prior Yr Qtr
                         
Commercial real estate:                        
Owner occupied   $ 1,369,130     $ 1,358,094     $ 1,352,999     $ 1,340,577     0.8 %   2.1 %
Investment properties   1,993,144     1,975,075     1,986,336     1,918,639     0.9 %   3.9 %
Multifamily real estate   311,706     288,442     248,150     266,883     8.1 %   16.8 %
Commercial construction   157,041     144,092     124,068     135,487     9.0 %   15.9 %
Multifamily construction   136,532     111,562     124,126     105,669     22.4 %   29.2 %
One- to four-family construction   399,361     380,782     375,704     363,586     4.9 %   9.8 %
Land and land development:                        
Residential   158,384     147,149     170,004     162,029     7.6 %   (2.2 )%
Commercial   27,095     27,917     29,184     30,556     (2.9 )%   (11.3 )%
Commercial business   1,311,409     1,286,204     1,207,879     1,187,848     2.0 %   10.4 %
Agricultural business including secured by farmland   339,932     344,412     369,156     383,275     (1.3 )%   (11.3 )%
One- to four-family real estate   869,556     800,008     813,077     846,899     8.7 %   2.7 %
Consumer:                        
Consumer secured by one- to four-family real estate   535,300     527,623     493,211     497,643     1.5 %   7.6 %
Consumer-other   165,859     160,203     157,254     159,546     3.5 %   4.0 %
Total loans receivable   $ 7,774,449     $ 7,551,563     $ 7,451,148     $ 7,398,637     3.0 %   5.1 %
Restructured loans performing under their restructured terms   $ 12,744     $ 13,531     $ 18,907     $ 17,649          
Loans 30 - 89 days past due and on accrual (1)   $ 9,619     $ 15,564     $ 11,571     $ 12,668          
Total delinquent loans (including loans on non-accrual), net (2)   $ 34,792     $ 32,961     $ 30,553     $ 39,543          
Total delinquent loans / Total loans outstanding   0.45 %   0.44 %   0.41 %   0.53 %        

(1) Includes $1.0 million of purchased credit-impaired loans at September 30, 2017 compared to $835,000 at June 30, 2017, $470,000 at December 31, 2016 and $486,000 at September 30, 2016.
(2) Delinquent loans include $2.9 million of delinquent purchased credit-impaired loans September 30, 2017 compared to $2.5 million at June 30, 2017, $1.7 million at December 31, 2016 and $3.6 million at September 30, 2016.

LOANS BY GEOGRAPHIC LOCATION   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016
    Amount   Percentage   Amount   Percentage   Amount   Percentage   Amount   Percentage
                                 
Washington   $ 3,515,881     45.2 %   $ 3,425,627     45.3 %   $ 3,433,617     46.1 %   $ 3,415,413     46.2 %
Oregon   1,561,723     20.1 %   1,532,460     20.3 %   1,505,369     20.2 %   1,466,845     19.8 %
California   1,381,572     17.8 %   1,304,194     17.3 %   1,239,989     16.6 %   1,204,273     16.3 %
Idaho   495,041     6.4 %   487,378     6.5 %   495,992     6.7 %   517,607     7.0 %
Utah   304,740     3.9 %   294,467     3.9 %   283,890     3.8 %   292,088     3.9 %
Other   515,492     6.6 %   507,437     6.7 %   492,291     6.6 %   502,411     6.8 %
Total loans   $ 7,774,449     100.0 %   $ 7,551,563     100.0 %   $ 7,451,148     100.0 %   $ 7,398,637     100.0 %


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
      Quarters Ended   Nine months ended
CHANGE IN THE   Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
ALLOWANCE FOR LOAN LOSSES                    
Balance, beginning of period   $ 88,586     $ 86,527     $ 81,318     $ 85,997     $ 78,008  
Provision for loan losses   2,000     2,000     2,000     6,000     4,000  
Recoveries of loans previously charged off:                    
Commercial real estate   19     264     34     353     98  
Multifamily real estate       11         11      
Construction and land   73     1,024     673     1,180     1,268  
One- to four-family real estate   8     109     482     262     1,052  
Commercial business   577     171     433     921     1,775  
Agricultural business, including secured by farmland   1     19     (138 )   133     39  
Consumer   98     101     73     293     529  
    776     1,699     1,557     3,153     4,761  
Loans charged off:                    
Commercial real estate   (584 )   (47 )       (631 )   (180 )
One- to four-family real estate           (92 )       (126 )
Commercial business   (491 )   (1,169 )   (333 )   (3,286 )   (643 )
Agricultural business, including secured by farmland   (1,001 )   (104 )       (1,264 )   (567 )
Consumer   (186 )   (320 )   (230 )   (869 )   (1,033 )
    (2,262 )   (1,640 )   (655 )   (6,050 )   (2,549 )
Net (charge-offs) recoveries   (1,486 )   59     902     (2,897 )   2,212  
Balance, end of period   $ 89,100     $ 88,586     $ 84,220     $ 89,100     $ 84,220  
Net recoveries (charge-offs) / Average loans outstanding   (0.019 )%   0.001 %   0.012 %   (0.038 )%   0.030 %


ALLOCATION OF                
ALLOWANCE FOR LOAN LOSSES   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016
Specific or allocated loss allowance:                
Commercial real estate   $ 23,431     $ 24,232     $ 20,993     $ 19,846  
Multifamily real estate   1,625     1,562     1,360     1,436  
Construction and land   29,422     27,312     34,252     33,803  
One- to four-family real estate   2,040     2,010     2,238     2,190  
Commercial business   18,657     19,126     16,533     16,507  
Agricultural business, including secured by farmland   3,949     3,808     2,967     2,833  
Consumer   4,016     3,987     4,104     3,934  
Total allocated   83,140     82,037     82,447     80,549  
Unallocated   5,960     6,549     3,550     3,671  
   Total allowance for loan losses   $ 89,100     $ 88,586     $ 85,997     $ 84,220  
Allowance for loan losses / Total loans outstanding   1.15 %   1.17 %   1.15 %   1.14 %
Allowance for loan losses / Non-performing loans   296 %   405 %   381 %   309 %


ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
  Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016
NON-PERFORMING ASSETS              
Loans on non-accrual status:              
Secured by real estate:              
Commercial $ 11,632     $ 6,267     $ 8,237     $ 12,776  
Multifamily             30  
Construction and land 1,726     1,726     1,748     1,747  
One- to four-family 2,878     2,955     2,263     3,414  
Commercial business 7,144     7,037     3,074     2,765  
Agricultural business, including secured by farmland 4,285     1,456     3,229     3,755  
Consumer 1,462     1,494     1,875     1,385  
  29,127     20,935     20,426     25,872  
Loans more than 90 days delinquent, still on accrual:              
Secured by real estate:              
Commercial 53         701      
Multifamily         147     147  
One- to four-family 722     754     1,233     852  
Commercial business 51     77          
Consumer 101     108     72     425  
  927     939     2,153     1,424  
Total non-performing loans 30,054     21,874     22,579     27,296  
Real estate owned (REO) 1,496     2,427     11,081     4,717  
Other repossessed assets 145     181     166     164  
Total non-performing assets $ 31,695     $ 24,482     $ 33,826     $ 32,177  
Total non-performing assets to total assets 0.30 %   0.24 %   0.35 %   0.33 %
Purchased credit-impaired loans, net $ 23,221     $ 26,267     $ 32,322     $ 38,674  


  Quarters Ended   Nine months ended
REAL ESTATE OWNED Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
Balance, beginning of period $ 2,427     $ 3,040     $ 6,147     $ 11,081     $ 11,627  
Additions from loan foreclosures     46     156     46     534  
Additions from acquisitions                 400  
Additions from capitalized costs     54         54      
Proceeds from dispositions of REO (961 )   (1,228 )   (1,699 )   (11,382 )   (8,021 )
Gain on sale of REO 30     721     281     1,953     981  
Valuation adjustments in the period     (206 )   (168 )   (256 )   (804 )
Balance, end of period $ 1,496     $ 2,427     $ 4,717     $ 1,496     $ 4,717  


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                         
DEPOSIT COMPOSITION                   Percentage Change
    Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016   Prior Qtr   Prior Yr
                         
Non-interest-bearing   $ 3,379,841     $ 3,254,581     $ 3,140,451     $ 3,190,293     3.8 %   5.9 %
Interest-bearing checking   955,486     953,227     914,484     853,594     0.2 %   11.9 %
Regular savings accounts   1,577,292     1,530,517     1,523,391     1,387,123     3.1 %   13.7 %
Money market accounts   1,525,657     1,539,165     1,497,755     1,557,951     (0.9 )%   (2.1 )%
Total interest-bearing transaction and savings accounts   4,058,435     4,022,909     3,935,630     3,798,668     0.9 %   6.8 %
Interest-bearing certificates   1,100,574     1,206,241     1,045,333     1,123,011     (8.8 )%   (2.0 )%
Total deposits   $ 8,538,850     $ 8,483,731     $ 8,121,414     $ 8,111,972     0.6 %   5.3 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016
    Amount   Percentage   Amount   Percentage   Amount   Percentage   Amount   Percentage
Washington   $ 4,654,406     54.6 %   $ 4,615,284     54.5 %   $ 4,347,644     53.6 %   $ 4,283,522     52.8 %
Oregon   1,811,459     21.2 %   1,806,639     21.3 %   1,708,973     21.0 %   1,737,754     21.4 %
California   1,442,727     16.9 %   1,445,621     17.0 %   1,469,748     18.1 %   1,491,903     18.4 %
Idaho   465,104     5.4 %   416,933     4.9 %   447,019     5.5 %   435,090     5.4 %
Utah   165,154     1.9 %   199,254     2.3 %   148,030     1.8 %   163,703     2.0 %
Total deposits   $ 8,538,850     100.0 %   $ 8,483,731     100.0 %   $ 8,121,414     100.0 %   $ 8,111,972     100.0 %


INCLUDED IN TOTAL DEPOSITS   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016
Public non-interest-bearing accounts   $ 86,262     $ 85,760     $ 92,789     $ 86,207  
Public interest-bearing transaction & savings accounts   108,257     124,075     128,976     115,458  
Public interest-bearing certificates   26,543     30,496     25,650     26,734  
Total public deposits   $ 221,062     $ 240,331     $ 247,415     $ 228,399  
Total brokered deposits   $ 171,718     $ 250,001     $ 34,074     $ 60,290  


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
    Actual   Minimum to be categorized as "Adequately Capitalized"   Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2017   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
  Total capital to risk-weighted assets   $ 1,239,520     13.52 %   $ 733,633     8.00 %   $ 917,041     10.00 %
  Tier 1 capital to risk-weighted assets   1,147,971     12.52 %   550,224     6.00 %   550,224     6.00 %
  Tier 1 leverage capital to average assets   1,147,971     11.49 %   399,595     4.00 %   n/a   n/a
  Common equity tier 1 capital to risk-weighted assets   1,023,702     11.16 %   412,668     4.50 %   n/a   n/a
Banner Bank:                        
  Total capital to risk-weighted assets   1,089,048     12.14 %   717,580     8.00 %   896,974     10.00 %
  Tier 1 capital to risk-weighted assets   999,815     11.15 %   538,185     6.00 %   717,580     8.00 %
  Tier 1 leverage capital to average assets   999,815     10.30 %   388,308     4.00 %   485,385     5.00 %
  Common equity tier 1 capital to risk-weighted assets   999,815     11.15 %   403,639     4.50 %   583,033     6.50 %
Islanders Bank:                        
  Total capital to risk-weighted assets   31,690     16.35 %   15,507     8.00 %   19,384     10.00 %
  Tier 1 capital to risk-weighted assets   29,375     15.15 %   11,630     6.00 %   15,507     8.00 %
  Tier 1 leverage capital to average assets   29,375     10.66 %   11,018     4.00 %   13,773     5.00 %
  Common equity tier 1 capital to risk-weighted assets   29,375     15.15 %   8,723     4.50 %   12,600     6.50 %


ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
                       
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  September 30, 2017   June 30, 2017   September 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 $ 6,086,554   $ 75,020   4.89 %   $ 5,987,295   $ 74,459   4.99 %   $ 5,843,381   $ 70,223   4.78 %
Commercial/agricultural loans 1,520,946   17,992   4.69 %   1,503,548   18,179   4.85 %   1,495,611   17,373   4.62 %
Consumer and other loans 140,758   2,209   6.23 %   138,724   2,157   6.24 %   142,977   2,209   6.15 %
Total loans(1) 7,748,258   95,221   4.88 %   7,629,567   94,795   4.98 %   7,481,969   89,805   4.78 %
Mortgage-backed securities 1,129,256   6,644   2.33 %   1,067,255   6,239   2.34 %   920,560   4,803   2.08 %
Other securities 473,808   3,192   2.67 %   471,894   3,192   2.71 %   472,159   3,050   2.57 %
Interest-bearing deposits with banks 51,607   159   1.22 %   54,051   139   1.03 %   86,868   98   0.45 %
FHLB stock 16,961   62   1.45 %   14,472   71   1.97 %   16,413   93   2.25 %
Total investment securities 1,671,632   10,057   2.39 %   1,607,672   9,641   2.41 %   1,496,000   8,044   2.14 %
Total interest-earning assets 9,419,890   105,278   4.43 %   9,237,239   104,436   4.53 %   8,977,969   97,849   4.34 %
Non-interest-earning assets 888,388         896,136         913,991      
Total assets $ 10,308,278         $ 10,133,375         $ 9,891,960      
Deposits:                      
Interest-bearing checking accounts $ 946,585   218   0.09 %   $ 927,375   210   0.09 %   $ 837,930   188   0.09 %
Savings accounts 1,557,475   538   0.14 %   1,553,019   527   0.14 %   1,371,911   449   0.13 %
Money market accounts 1,534,867   653   0.17 %   1,534,551   689   0.18 %   1,564,906   749   0.19 %
Certificates of deposit 1,151,725   1,780   0.61 %   1,200,435   1,756   0.59 %   1,173,630   1,398   0.47 %
Total interest-bearing deposits 5,190,652   3,189   0.24 %   5,215,380   3,182   0.24 %   4,948,377   2,784   0.22 %
Non-interest-bearing deposits 3,300,185     %   3,158,727     %   3,120,279     %
Total deposits 8,490,837   3,189   0.15 %   8,374,107   3,182   0.15 %   8,068,656   2,784   0.14 %
Other interest-bearing liabilities:                      
FHLB advances 165,586   569   1.36 %   103,848   301   1.16 %   152,198   256   0.67 %
Other borrowings 116,297   84   0.29 %   116,513   83   0.29 %   111,016   82   0.29 %
Junior subordinated debentures 140,212   1,226   3.47 %   140,212   1,164   3.33 %   140,212   1,019   2.89 %
Total borrowings 422,095   1,879   1.77 %   360,573   1,548   1.72 %   403,426   1,357   1.34 %
Total funding liabilities 8,912,932   5,068   0.23 %   8,734,680   4,730   0.22 %   8,472,082   4,141   0.19 %
Other non-interest-bearing liabilities(2) 67,918         56,175         68,566      
Total liabilities 8,980,850         8,790,855         8,540,648      
Shareholders' equity 1,327,428         1,342,520         1,351,312      
Total liabilities and shareholders' equity $ 10,308,278         $ 10,133,375         $ 9,891,960      
Net interest income/rate spread   $ 100,210   4.20 %     $ 99,706   4.31 %     $ 93,708   4.15 %
Net interest margin     4.22 %       4.33 %       4.15 %
Additional Key Financial Ratios:                      
Return on average assets     0.97 %       1.01 %       0.96 %
Return on average equity     7.49 %       7.60 %       7.02 %
Average equity/average assets     12.88 %       13.25 %       13.66 %
Average interest-earning assets/average interest-bearing liabilities     167.83 %       165.66 %       167.76 %
Average interest-earning assets/average funding liabilities     105.69 %       105.75 %       105.97 %
Non-interest income/average assets     0.78 %       0.89 %       0.95 %
Non-interest expense/average assets     3.18 %       3.24 %       3.18 %
Efficiency ratio(4)     68.51 %       67.06 %       67.47 %
Adjusted efficiency ratio(5)     66.26 %       65.42 %       63.61 %


(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 Nine months ended
  September 30, 2017   September 30, 2016
  Average Balance Interest and Dividends Yield/Cost(3)   Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:              
Mortgage loans $ 6,059,476   $ 222,028   4.90 %   $ 5,755,988   $ 207,881   4.82 %
Commercial/agricultural loans 1,496,549   52,717   4.71 %   1,490,757   51,213   4.59 %
Consumer and other loans 139,181   6,559   6.30 %   141,570   6,603   6.23 %
Total loans(1) 7,695,206   281,304   4.89 %   7,388,315   265,697   4.80 %
Mortgage-backed securities 1,013,913   17,529   2.31 %   976,267   15,467   2.12 %
Other securities 466,572   9,420   2.70 %   450,142   8,752   2.60 %
Interest-bearing deposits with banks 46,022   392   1.14 %   95,406   300   0.42 %
FHLB stock 15,666   164   1.40 %   17,614   254   1.93 %
Total investment securities 1,542,173   27,505   2.38 %   1,539,429   24,773   2.15 %
Total interest-earning assets 9,237,379   308,809   4.47 %   8,927,744   290,470   4.35 %
Non-interest-earning assets 902,435         903,957      
Total assets $ 10,139,814         $ 9,831,701      
Deposits:              
Interest-bearing checking accounts $ 923,757   627   0.09 %   $ 853,818   570   0.09 %
Savings accounts 1,556,075   1,588   0.14 %   1,336,259   1,303   0.13 %
Money market accounts 1,530,675   1,994   0.17 %   1,587,500   2,421   0.20 %
Certificates of deposit 1,147,387   4,953   0.58 %   1,248,781   4,207   0.45 %
Total interest-bearing deposits 5,157,894   9,162   0.24 %   5,026,358   8,501   0.23 %
Non-interest-bearing deposits 3,203,033     %   2,980,027     %
Total deposits 8,360,927   9,162   0.15 %   8,006,385   8,501   0.14 %
Other interest-bearing liabilities:              
FHLB advances 133,365   1,142   1.14 %   178,468   874   0.65 %
Other borrowings 113,664   241   0.28 %   108,632   234   0.29 %
Junior subordinated debentures 140,212   3,494   3.33 %   140,212   2,962   2.82 %
Total borrowings 387,241   4,877   1.68 %   427,312   4,070   1.27 %
Total funding liabilities 8,748,168   14,039   0.21 %   8,433,697   12,571   0.20 %
Other non-interest-bearing liabilities(2) 60,895         64,825      
Total liabilities 8,809,063         8,498,522      
Shareholders' equity 1,330,751         1,333,179      
Total liabilities and shareholders' equity $ 10,139,814         $ 9,831,701      
Net interest income/rate spread   $ 294,770   4.26 %     $ 277,899   4.15 %
Net interest margin     4.27 %       4.16 %
Additional Key Financial Ratios:              
Return on average assets     0.98 %       0.85 %
Return on average equity     7.47 %       6.27 %
Average equity/average assets     13.12 %       13.56 %
Average interest-earning assets/average interest-bearing liabilities     166.59 %       163.70 %
Average interest-earning assets/average funding liabilities     105.59 %       105.86 %
Non-interest income/average assets     0.84 %       0.87 %
Non-interest expense/average assets     3.20 %       3.30 %
Efficiency ratio(4)     67.68 %       71.08 %
Adjusted efficiency ratio(5)     65.84 %       65.23 %


(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   Nine months ended
  Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
Net interest income before provision for loan losses $ 100,210     $ 99,706     $ 93,708     $ 294,770     $ 277,899  
Total non-interest income 20,339     22,469     23,512     63,653     64,007  
Total GAAP revenue 120,549     122,175     117,220     358,423     341,906  
Exclude net (gain) loss on sale of securities (270 )   54     (891 )   (230 )   (531 )
Exclude change in valuation of financial instruments carried at fair value 493     650     1,124     1,831     1,472  
Revenue from core operations (non-GAAP) $ 120,772     $ 122,879     $ 117,453     $ 360,024     $ 342,847  


NON-INTEREST INCOME FROM CORE OPERATIONS   Quarters Ended   Nine months ended
    Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
Total non-interest income (GAAP)   $ 20,339     $ 22,469     $ 23,512     $ 63,653     $ 64,007  
Exclude net (gain) loss on sale of securities   (270 )   54     (891 )   (230 )   (531 )
Exclude change in valuation of financial instruments carried at fair value   493     650     1,124     1,831     1,472  
Non-interest income from core operations (non-GAAP)   $ 20,562     $ 23,173     $ 23,745     $ 65,254     $ 64,948  


EARNINGS FROM CORE OPERATIONS   Quarters Ended   Nine months ended
    Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
Net income (GAAP)   $ 25,077     $ 25,454     $ 23,851     $ 74,324     $ 62,581  
Exclude net (gain) loss on sale of securities   (270 )   54     (891 )   (230 )   (531 )
Exclude change in valuation of financial instruments carried at fair value   493     650     1,124     1,831     1,472  
Exclude acquisition-related costs           1,720         10,945  
Exclude related tax benefit   (80 )   (253 )   (703 )   (576 )   (4,261 )
Total earnings from core operations (non-GAAP)   $ 25,220     $ 25,905     $ 25,101     $ 75,349     $ 70,206  
                     
Diluted earnings per share (GAAP)   $ 0.76     $ 0.77     $ 0.70     $ 2.25     $ 1.83  
Diluted core earnings per share (non-GAAP)   $ 0.76     $ 0.78     $ 0.74     $ 2.28     $ 2.06  


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Nine months ended
    Sep 30, 2017   Jun 30, 2017   Sep 30, 2016   Sep 30, 2017   Sep 30, 2016
Non-interest expense (GAAP)   $ 82,589     $ 81,930     $ 79,092     $ 242,597     $ 243,013  
Exclude acquisition-related costs           (1,720 )       (10,945 )
Exclude CDI amortization   (1,542 )   (1,624 )   (1,724 )   (4,790 )   (5,339 )
Exclude state/municipal tax expense   (780 )   (279 )   (956 )   (1,857 )   (2,564 )
Exclude REO (loss) gain   (240 )   363     21     1,089     (513 )
Adjusted non-interest expense (non-GAAP)   $ 80,027     $ 80,390     $ 74,713     $ 237,039     $ 223,652  
                     
Net interest income before provision for loan losses (GAAP)   $ 100,210     $ 99,706     $ 93,708     $ 294,770     $ 277,899  
Non-interest income (GAAP)   20,339     22,469     23,512     63,653     64,007  
Total revenue   120,549     122,175     117,220     358,423     341,906  
Exclude net (gain) loss on sale of securities   (270 )   54     (891 )   (230 )   (531 )
Exclude net change in valuation of financial instruments carried at fair value   493     650     1,124     1,831     1,472  
Adjusted revenue (non-GAAP)   $ 120,772     $ 122,879     $ 117,453     $ 360,024     $ 342,847  
                     
Efficiency ratio (GAAP)   68.51 %   67.06 %   67.47 %   67.68 %   71.08 %
Adjusted efficiency ratio (non-GAAP)   66.26 %   65.42 %   63.61 %   65.84 %   65.23 %


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS   Sep 30, 2017   Jun 30, 2017   Dec 31, 2016   Sep 30, 2016
Shareholders' equity (GAAP)   $ 1,327,011     $ 1,309,851     $ 1,305,710     $ 1,331,271  
Exclude goodwill and other intangible assets, net   269,802     271,396     274,745     276,517  
Tangible common shareholders' equity (non-GAAP)   $ 1,057,209     $ 1,038,455     $ 1,030,965     $ 1,054,754  
                 
Total assets (GAAP)   $ 10,443,086     $ 10,199,820     $ 9,793,668     $ 9,841,028  
Exclude goodwill and other intangible assets, net   269,802     271,396     274,745     276,517  
Total tangible assets (non-GAAP)   $ 10,173,284     $ 9,928,424     $ 9,518,923     $ 9,564,511  
Common shareholders' equity to total assets (GAAP)   12.71 %   12.84 %   13.33 %   13.53 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   10.39 %   10.46 %   10.83 %   11.03 %
                 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE                
Tangible common shareholders' equity   $ 1,057,209     $ 1,038,455     $ 1,030,965     $ 1,054,754  
Common shares outstanding at end of period   33,254,784     33,278,031     33,193,387     33,867,311  
Common shareholders' equity (book value) per share (GAAP)   $ 39.90     $ 39.36     $ 39.34     $ 39.31  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 31.79     $ 31.21     $ 31.06     $ 31.14  

 

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

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