Market Overview

Banner Corporation Reports Fourth Quarter and Year End Results; Highlighted by Strong Revenues and Balance Sheet Restructuring; Assets Stay Below $10 Billion at Year End

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WALLA WALLA, Wash., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported that core operations remain strong and year-over-year revenue growth contributed to increased fourth quarter and 2017 income before provision for income taxes.  However, as a result of the previously announced write-down of deferred tax assets, which resulted in an additional tax expense of $42.6 million, or $1.30 per diluted share, Banner reported a net loss in the fourth quarter of 2017 of $13.5 million, or $0.41 per diluted share.  This compares to net income of $25.1 million, or $0.76 per diluted share, in the preceding quarter and net income of $22.8 million, or $0.69 per diluted share, in the fourth quarter a year ago.  For the year ended December 31, 2017, net income was $60.8 million, or $1.84 per diluted share, compared to $85.4 million, or $2.52 per diluted share, in 2016.  There were no acquisition-related costs in 2017, compared to $11.7 million in acquisition-related expenses in 2016.

"Our fourth quarter results were significantly impacted by the write-down of deferred tax assets following passage of the Tax Cuts and Jobs Act on December 22, 2017.  Results were also significantly impacted by the sale of our Utah operations which generated a substantial gain on sale of $12.2 million.   In addition, securities sales in connection with our balance sheet restructuring designed to postpone the adverse impact of the Durbin Amendment on debit card interchange fees produced a $2.3 million net loss on the sale of securities," stated Mark J. Grescovich, President and Chief Executive Officer.  "Aside from those one-time events, our core operations remain solid, with strong net interest income and other revenues contributing to record pre-tax earnings for the year.  We continue to invest in infrastructure to augment our risk management operations to meet the additional regulatory requirements as we plan for growth beyond the $10 billion benchmark.  While making those necessary investments we remain focused on delivering revenue growth, sustainable profitability and increasing value to our shareholders while still maintaining our moderate risk profile.  Through the hard work of our dedicated employees throughout 2017 we continued to advance these goals."

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.  In addition, on January 4, 2018, Banner announced that as a result of the Tax Cuts and Jobs Act, it was required to revalue its deferred tax assets and liabilities to account for the future impact of lower corporate tax rates and other provisions of the legislation.  Banner recorded a one-time net tax charge during the fourth quarter of $42.6 million, or $1.30 per share, related to the revaluation of these deferred tax items. This increase in income tax expense was reflected in operating results for the fourth quarter of 2017 and was in addition to the normal provision for income tax related to pre-tax net operating income.

In addition, during the fourth quarter Banner implemented a number of strategic balance sheet initiatives designed to keep its assets below $10 billion at December 31, 2017 in order to postpone the adverse impact of the Durbin Amendment to the Dodd-Frank Act regarding limits on, among other things, debit card interchange fees.  As previously disclosed, Banner estimates that the Durbin Amendment will have a $12 million annualized negative impact on pre-tax revenues commencing six months after the calendar year end when it exceeds $10 billion in assets.  In December of 2017, Banner sold approximately $470 million of investment securities in the available for sale portfolio, using the proceeds to fund loans and to pay down certain wholesale borrowings and maturing brokered deposits.  Banner incurred pre-tax net losses of $2.3 million in connection with the sale of these investment securities, which will produce tax benefits based upon the 2017 marginal federal income tax rate of 35%.  To the extent that the Company re-leverages its balance sheet in future periods, the net interest income on replacement securities will be subject to the new 21% marginal corporate federal income tax rate.  In recent periods Banner has incurred a blended effective federal and state tax rate of 33% to 34%.  As a result of the reduced marginal federal tax rate, Banner anticipates that its blended effective federal and state tax rate will be approximately 22% to 23% in 2018.

At December 31, 2017, Banner Corporation had $9.76 billion in assets, $7.51 billion in net loans and $8.18 billion in deposits.  Banner operates 178 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Fourth Quarter 2017 Highlights

  • Total assets at December 31, 2017 were $9.76 billion, postponing the adverse effects of the Durbin Amendment.
  • Completed sale of Banner Bank's seven Utah branches generating a gain on sale of $12.2 million.
  • Revenues were $128.1 million during the quarter ended December 31, 2017, $120.5 million during the preceding quarter and $116.6 million during the fourth quarter last year.
  • Revenues from core operations* were $119.3 million, compared to $120.8 million in the preceding quarter, and increased 2% compared to $117.5 million in the fourth quarter a year ago.
  • Net interest margin was 4.18% for the current quarter, compared to 4.22% in the preceding quarter and 4.32% in the fourth quarter a year ago.
  • Deposit fees and other service charges were $13.0 million, compared to $13.3 million in the preceding quarter and a 7% increase compared to $12.2 million in the fourth quarter a year ago.
  • Provision for loan losses was $2.0 million, bringing the allowance for loan losses to $89.0 million or 1.17% of total loans.
  • Net loans receivable were $7.51 billion at December 31, 2017, compared to $7.69 billion at September 30, 2017, and increased 2% compared to $7.37 billion a year ago.
  • Core deposits increased 2% compared to December 31, 2016 and represented 88% of total deposits at December 31, 2017.
  • Quarterly dividends to shareholders were $0.25 per share.
  • Common shareholders' tangible equity per share* was $30.78 at December 31, 2017, compared to $31.79 at the preceding quarter end and $31.06 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 10.61% at December 31, 2017, compared to 10.39% at the preceding quarter end and 10.83% a year ago.
  • Repurchased 520,166 shares of common stock at an average price of $56.99 per share.
  • Nonperforming assets declined by $4.2 million to $27.5 million or 0.28% of total assets.

*Revenues from core operations and non-interest income from core operations (both of which exclude fair value adjustments, gains and losses on the sale of securities and gain on the sale of branches), 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 fourth quarter net interest income, before the provision for loan losses, was $98.3 million, compared to $100.2 million in the preceding quarter and $97.2 million in the fourth quarter a year ago.  For the full year 2017, net interest income, before the provision for loan losses, increased 5% to $393.0 million compared to $375.1 million in 2016.

"Our net interest income decreased compared to the preceding quarter, largely reflecting the sale of the Utah branches and to a lesser extent the balance sheet deleveraging," said Grescovich.  "Our net interest margin also decreased modestly primarily as a result of a reduction in purchased loan discount accretion in the current quarter."  Banner's net interest margin was 4.18% for the fourth quarter of 2017, compared to 4.22% in the preceding quarter and 4.32% in the fourth quarter a year ago.  Acquisition accounting adjustments, principally loan discount accretion, added five basis points to the net interest margin in the current quarter compared to ten basis points in the preceding quarter and 19 basis points in the fourth quarter a year ago.  For all of 2017, Banner's net interest margin improved four basis points to 4.24% compared to 4.20% in 2016.  Acquisition accounting adjustments added ten basis points to the net interest margin for the year compared to 16 basis points for 2016.  The total purchase discount for acquired loans was $21.1 million at December 31, 2017, a decrease from $23.4 million at September 30, 2017 and $32.1 million a year ago, primarily as a result of discount accretion.

Average interest-earning asset yields decreased three basis points to 4.40% compared to 4.43% for the preceding quarter and decreased nine basis points compared to 4.49% in the fourth quarter a year ago.  Average loan yields decreased six basis points to 4.82% compared to the preceding quarter and decreased 11 basis points from the fourth quarter a year ago.  Loan discount accretion added six basis points to loan yields in the fourth quarter, compared to 12 basis points in the preceding quarter and 21 basis points in the fourth quarter a year ago.  Deposit costs were 0.15% in the fourth quarter, the same as in the preceding quarter and a two basis point increase compared to the fourth quarter a year ago.  The total cost of funds was 0.23% during the fourth quarter, the same as in the preceding quarter and a five basis point increase compared to the fourth quarter a year ago.

"Our asset quality metrics continue to remain strong, allowing our provision for loan losses to remain modest again this quarter while still maintaining a moderate risk profile," said Grescovich.   Largely as a result of the addition of new loans, the renewal of acquired loans out of the discounted loan portfolio and net charge-offs, Banner recorded a $2.0 million provision for loan losses during the fourth quarter, the same as in both the preceding and year ago quarters.

Deposit fees and other service charges were $13.0 million in the fourth quarter, a slight decrease compared to $13.3 million in the preceding quarter reflecting the sale of Utah branch deposits at the beginning of the quarter but a increased 7% compared to $12.2 million in the fourth quarter a year ago.

Banner's mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $5.0 million in the fourth quarter compared to $4.5 million in the preceding quarter and decreased modestly compared to $5.1 million in the fourth quarter of 2016.  Home purchase activity accounted for 71% of fourth quarter one- to four-family mortgage loan originations.

Fourth quarter 2017 results included a $1.0 million net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value and a $2.3 million net loss on the sale of securities.  In the preceding quarter, results included a $493,000 net loss for fair value adjustments that was partially offset by a $270,000 net gain on the sale of securities.  In the fourth quarter a year ago, results included a $1.1 million net loss for fair value adjustments that was partially offset by a $311,000 net gain on the sale of securities.

Total revenues increased 6% to $128.1 million for the fourth quarter of 2017, compared to $120.5 million in the preceding quarter and increased 10% compared to $116.6 million in the fourth quarter a year ago.  For the year ended December 31, 2017, total revenues increased 6% to $486.6 million, compared to $458.5 million for the full year 2016.  Reflecting the  decline in earning assets as a result of  the sale of the Utah branches early in the fourth quarter and balance sheet restructuring later in the quarter, revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments and in the current quarter the gain on sale of the branches) decreased to $119.3 million in the fourth quarter of 2017, compared to $120.8 million in the preceding quarter, but increased 2% compared to $117.5 million in the fourth quarter of 2016.  Despite the sale of the Utah branches, 2017 revenues from core operations* increased 4% to $479.3 million, compared to $460.3 million in 2016.

Total non-interest income, which includes the changes in the valuation of financial instruments carried at fair value, gains and losses on the sale of securities, and the gain on sale of the Utah branches, was $29.9 million in the fourth quarter of 2017, compared to $20.3 million in the third quarter of 2017 and $19.5 million in the fourth quarter a year ago.  For the year ended December 31, 2017, total non-interest income was $93.5 million compared to $83.5 million in 2016.  Non-interest income from core operations,* which excludes gains and losses on sale of securities, net changes in the valuation of financial instruments and the gain on sale of the Utah branches, was $21.0 million in the fourth quarter of 2017, compared to $20.6 million for the third quarter of 2017 and $20.3 million in the fourth quarter a year ago.  For all of 2017, non-interest income from core operations* was $86.3 million, compared to $85.2 million for the year ended December 31, 2016.

Banner's total non-interest expense was $84.7 million in the fourth quarter of 2017, compared to $82.6 million in the preceding quarter and $79.9 million in the fourth 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 fourth quarter a year ago largely due to enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out.  Professional services expense for the current quarter also included an expected seasonal increase for outside audit services.  Advertising and marketing expenses were meaningfully higher in the current quarter compared to the preceding quarter but were comparable to the fourth quarter a year ago.  Gains on the sale of real estate owned reduced total operating expenses in both the quarter and year ended December 31, 2017.  There were no acquisition-related expenses in the current quarter or in the preceding quarter, compared to $788,000 in the fourth quarter a year ago.  For the year ended December 31, 2017, non-interest expense was $327.3 million compared to $322.9 million in 2016.  Total operating expenses for the year ended December 31, 2016 included $11.7 million of acquisition-related expenses.  There were no acquisition-related expenses in 2017.

For the fourth quarter of 2017, Banner recorded $55.0 million in state and federal income tax expense, which, in addition to the normal provision for income taxes related to pre-tax income, included a $42.6 million net charge related to the revaluation of its deferred tax assets and liabilities as a result of the Tax Cuts and Jobs act as well as  a net credit of $1.7 million for the release of a valuation reserve on an acquisition related net operating loss carryforward deferred tax asset.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recognized or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment.

Balance Sheet Review

As part of its year-end balance sheet restructuring efforts, Banner's total assets decreased to $9.76 billion at December 31, 2017, compared to $10.44 billion at September 30, 2017.  Banner's total assets were $9.79 billion at December 31, 2016.  The total of securities and interest-bearing deposits held at other banks was $1.26 billion at December 31, 2017, compared to $1.68 billion at September 30, 2017 and $1.16 billion at December 31, 2016.  The decrease in the securities portfolio at the end of the year reflects Banner's deleveraging strategy to reduce total assets below the $10 billion threshold at the end of 2017 to postpone the adverse impact of the Durbin Amendment.  The average effective duration of Banner's securities portfolio was approximately 4.1 years at December 31, 2017, compared to 3.8 years at December 31, 2016.

"As part of our planned balance sheet restructuring, we reduced our securities and deposit portfolios at the end of the year to keep our asset size below $10 billion," said Grescovich.  "However, net loans increased 2% year over year, with solid production in targeted loan types, including commercial business, construction and land development loans, residential real estate and consumer loans.  We continue to see significant potential for growth in our loan origination pipelines due to the robust economic activity in the markets that we serve."

As a result of the sale of our Utah operations, which included the sale of $255 million of loans, net loans receivable decreased to $7.51 billion at December 31, 2017, compared to $7.69 billion at September 30, 2017; however, despite the impact of the sale net loans increased 2% compared to $7.37 billion a year ago.  Commercial real estate and multifamily real estate loans decreased slightly to $3.53 billion at December 31, 2017, compared to $3.67 billion at September 30, 2017, and $3.59 billion a year ago.  Commercial business loans were $1.28 billion at December 31, 2017, compared to $1.31 billion three months earlier and increased 6% compared to $1.21 billion a year ago.  Agricultural business loans declined to $338.4 million at December 31, 2017, compared to $339.9 million three months earlier and $369.2 million a year ago.  Total construction, land and land development loans increased 3% to $907.5 million at December 31, 2017, compared to $878.4 million at September 30, 2017, and increased 10% compared to $823.1 million a year earlier.  Consumer loans decreased to $688.8 million at December 31, 2017, compared to $701.2 million at September 30, 2017, but increased 6% compared to $650.5 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 decreased to $848.3 million compared to $869.6 million at September 30, 2017 but increased 4% compared to $813.1 million a year ago.

Loans held for sale decreased 43% to $40.7 million at December 31, 2017, compared to $71.9 million at September 30, 2017, and decreased 84% compared to $246.4 million at December 31, 2016.  The volume of residential mortgage loans sold was $141.1 million in the current quarter compared to $141.0 million in the preceding quarter and $174.5 million in the fourth quarter a year ago.  Banner sold $74.1 million of multifamily loans during the quarter ended December 31, 2017, $86.0 million during the preceding quarter and $16.4 million during the fourth quarter last year.  Loans held for sale at December 31, 2017 included $12.9 million of multifamily loans and $27.8 million of one- to four-family loans.

Total deposits were $8.18 billion at December 31, 2017, a decrease compared to $8.54 billion at September 30, 2017, also reflecting the Utah branch sale, and a modest increase compared to $8.12 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 $3.27 billion at December 31, 2017, compared to $3.38 billion at September 30, 2017 and increased 4% compared to $3.14 billion a year ago. Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) decreased 3% during the current quarter but increased 2% compared to December 31, 2016.  Core deposits represented 88% of total deposits December 31, 2017 compared to 87% of total deposits at both September 30, 2017 and a year earlier.  Certificates of deposit were $966.9 million at December 31, 2017, compared to $1.10 billion at September 30, 2017 and $1.05 billion a year earlier.  Brokered deposits declined to $57.2 million at December 31, 2017, compared to $171.7 million at September 30, 2017 and were $34.1 million a year earlier.  The average cost of deposits was 0.15% for the quarter ended December 31, 2017, the same as in the preceding quarter and a two basis point increase compared to the quarter ended December 31, 2016.

At December 31, 2017, total common shareholders' equity was $1.27 billion, or $38.89 per share, compared to $1.33 billion at September 30, 2017 and $1.31 billion a year ago.  At December 31, 2017, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.00 billion, or 10.61% of tangible assets*, compared to $1.06 billion, or 10.39% of tangible assets, at September 30, 2017 and $1.03 billion, or 10.83% of tangible assets, a year ago.  Banner's tangible book value per share* was $30.78 at December 31, 2017, compared to $31.06 per share a year ago.

In addition to the impact of the net loss and dividend payments for the quarter, Banner also reduced its equity capital during the fourth quarter of 2017 through the repurchase of 520,166 shares of its common stock at an average price per share of $56.99 for a total purchase price of $29.6 million that further enhanced its efforts to close the year below $10 billion in total assets.  Nonetheless, 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 December 31, 2017, Banner Corporation's common equity Tier 1 capital ratio was 11.30%, its Tier 1 leverage capital to average assets ratio was 11.33%, and its total capital to risk-weighted assets ratio was 13.80%.

Credit Quality

The allowance for loan losses was $89.0 million at December 31, 2017, or 1.17% of total loans outstanding and 329% of non-performing loans compared to $89.1 million at September 30, 2017, or 1.15% of total loans outstanding and 296% of non-performing loans, and $86.0 million at December 31, 2016, or 1.15% of total loans outstanding and 381% of non-performing loans.  Net charge-offs totaled $2.1 million in the fourth quarter compared to $1.5 million in the preceding quarter and $253,000 in the fourth 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 $27.0 million at December 30, 2017, compared to $30.1 million at September 30, 2017 and $22.6 million a year ago.  Real estate owned and other repossessed assets were $467,000 at December 31, 2017, compared to $1.6 million at September 30, 2017 and $11.2 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 $27.5 million, or 0.28% of total assets, at December 31, 2017, compared to $31.7 million, or 0.30% of total assets, at September 30, 2017 and $33.8 million, or 0.35% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $21.3 million at December 31, 2017, compared to $23.2 million at September 30, 2017 and $32.3 million a year ago.

Conference Call

Banner will host a conference call on Thursday, January 25, 2018, at 8:00 a.m. PST, to discuss its fourth quarter and year end 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 10115119, or at www.bannerbank.com.

About the Company

Banner Corporation is a $9.8 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   Twelve months ended
(in thousands except shares and per share data)   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
                     
INTEREST INCOME:                    
Loans receivable   $ 93,145     $ 95,221     $ 93,915     $ 374,449     $ 359,612  
Mortgage-backed securities   7,006     6,644     3,861     24,535     19,328  
Securities and cash equivalents   3,324     3,413     3,231     13,300     12,537  
    103,475     105,278     101,007     412,284     391,477  
INTEREST EXPENSE:                    
Deposits   3,111     3,189     2,604     12,273     11,105  
Federal Home Loan Bank advances   766     569     79     1,908     953  
Other borrowings   77     84     76     317     310  
Junior subordinated debentures   1,257     1,226     1,077     4,752     4,040  
    5,211     5,068     3,836     19,250     16,408  
Net interest income before provision for loan losses   98,264     100,210     97,171     393,034     375,069  
PROVISION FOR LOAN LOSSES   2,000     2,000     2,030     8,000     6,030  
Net interest income   96,264     98,210     95,141     385,034     369,039  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   13,048     13,316     12,199     51,787     49,156  
Mortgage banking operations   5,025     4,498     5,143     20,880     25,552  
Bank owned life insurance   1,020     1,043     893     4,618     4,538  
Miscellaneous   1,923     1,705     2,065     8,985     6,001  
    21,016     20,562     20,300     86,270     85,247  
Net (loss) gain on sale of securities   (2,310 )   270     311     (2,080 )   843  
Net change in valuation of financial instruments carried at fair value   (1,013 )   (493 )   (1,148 )   (2,844 )   (2,620 )
Gain on sale of branches, including related loans and deposits   12,189             12,189      
Total non-interest income   29,882     20,339     19,463     93,535     83,470  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   48,082     48,931     44,387     192,096     180,883  
Less capitalized loan origination costs   (4,134 )   (4,331 )   (4,785 )   (17,379 )   (18,895 )
Occupancy and equipment   12,088     11,737     12,581     47,866     45,000  
Information / computer data services   4,731     4,420     4,674     17,245     19,281  
Payment and card processing services   6,015     5,839     5,440     22,665     21,604  
Professional services   5,301     3,349     2,384     17,534     8,120  
Advertising and marketing   3,412     2,130     3,220     8,637     9,709  
Deposit insurance   1,251     1,101     1,012     4,689     4,551  
State/municipal business and use taxes   737     780     952     2,594     3,516  
Real estate operations   (941 )   240     (338 )   (2,030 )   175  
Amortization of core deposit intangibles   1,457     1,542     1,722     6,246     7,061  
Miscellaneous   6,710     6,851     7,820     27,142     30,131  
    84,709     82,589     79,069     327,305     311,136  
Acquisition related expenses           788         11,733  
Total non-interest expense   84,709     82,589     79,857     327,305     322,869  
Income before provision for income taxes   41,437     35,960     34,747     151,264     129,640  
PROVISION FOR INCOME TAXES   54,985     10,883     11,943     90,488     44,255  
NET (LOSS) INCOME   $ (13,548 )   $ 25,077     $ 22,804     $ 60,776     $ 85,385  
(Loss) Earnings per share available to common shareholders:                    
Basic   $ (0.41 )   $ 0.76     $ 0.69     $ 1.85     $ 2.52  
Diluted   $ (0.41 )   $ 0.76     $ 0.69     $ 1.84     $ 2.52  
Cumulative dividends declared per common share   $ 0.25     $ 0.25     $ 0.23     $ 2.00     $ 0.88  
Weighted average common shares outstanding:                    
Basic   32,655,973     32,982,532     33,134,222     32,888,007     33,820,148  
Diluted   32,766,335     33,079,099     33,201,333     32,986,707     33,853,511  
Decrease in common shares outstanding   (528,299 )   (23,247 )   (673,924 )   (466,902 )   (1,048,868 )


FINANCIAL CONDITION               Percentage Change
(in thousands except shares and per share data)   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Prior
Qtr
  Prior
Yr Qtr
                     
ASSETS                    
Cash and due from banks   $ 199,624     $ 192,278     $ 177,083     3.8 %   12.7 %
Interest-bearing deposits   61,576     49,488     70,636     24.4 %   (12.8 )%
Total cash and cash equivalents   261,200     241,766     247,719     8.0 %   5.4 %
Securities - trading   22,318     23,466     24,568     (4.9 )%   (9.2 )%
Securities - available for sale   919,485     1,339,057     800,917     (31.3 )%   14.8 %
Securities - held to maturity   260,271     264,752     267,873     (1.7 )%   (2.8 )%
Federal Home Loan Bank stock   10,334     20,854     12,506     (50.4 )%   (17.4 )%
Loans held for sale   40,725     71,905     246,353     (43.4 )%   (83.5 )%
Loans receivable   7,598,884     7,774,449     7,451,148     (2.3 )%   2.0 %
Allowance for loan losses   (89,028 )   (89,100 )   (85,997 )   (0.1 )%   3.5 %
Net loans   7,509,856     7,685,349     7,365,151     (2.3 )%   2.0 %
Accrued interest receivable   31,259     33,837     30,178     (7.6 )%   3.6 %
Real estate owned held for sale, net   360     1,496     11,081     (75.9 )%   (96.8 )%
Property and equipment, net   154,815     159,893     166,481     (3.2 )%   (7.0 )%
Goodwill   242,659     244,583     244,583     (0.8 )%   (0.8 )%
Other intangibles, net   22,655     25,219     30,162     (10.2 )%   (24.9 )%
Bank-owned life insurance   162,668     161,648     158,936     0.6 %   2.3 %
Other assets   124,604     169,261     187,160     (26.4 )%   (33.4 )%
Total assets   $ 9,763,209     $ 10,443,086     $ 9,793,668     (6.5 )%   (0.3 )%
LIABILITIES                    
Deposits:                    
Non-interest-bearing   $ 3,265,544     $ 3,379,841     $ 3,140,451     (3.4 )%   4.0 %
Interest-bearing transaction and savings accounts   3,950,950     4,058,435     3,935,630     (2.6 )%   0.4 %
Interest-bearing certificates   966,937     1,100,574     1,045,333     (12.1 )%   (7.5 )%
Total deposits   8,183,431     8,538,850     8,121,414     (4.2 )%   0.8 %
Advances from Federal Home Loan Bank at fair value   202     263,349     54,216     (99.9 )%   (99.6 )%
Customer repurchase agreements and other borrowings   95,860     103,713     105,685     (7.6 )%   (9.3 )%
Junior subordinated debentures at fair value   98,707     97,280     95,200     1.5 %   3.7 %
Accrued expenses and other liabilities   71,344     72,604     71,369     (1.7 )%   %
Deferred compensation   41,039     40,279     40,074     1.9 %   2.4 %
Total liabilities   8,490,583     9,116,075     8,487,958     (6.9 )%   %
SHAREHOLDERS' EQUITY                      
Common stock   1,187,127     1,215,482     1,213,837     (2.3 )%   (2.2 )%
Retained earnings (1)   89,740     111,405     95,328     (19.4 )%   (5.9 )%
Other components of shareholders' equity (1)   (4,241 )   124     (3,455 )   nm     22.7 %
Total shareholders' equity   1,272,626     1,327,011     1,305,710     (4.1 )%   (2.5 )%
Total liabilities and shareholders' equity   $ 9,763,209     $ 10,443,086     $ 9,793,668     (6.5 )%   (0.3 )%
Common Shares Issued:                    
Shares outstanding at end of period   32,726,485     33,254,784     33,193,387          
Common shareholders' equity per share (2)   $ 38.89     $ 39.90     $ 39.34          
Common shareholders' tangible equity per share (2) (3)   $ 30.78     $ 31.79     $ 31.06          
Common shareholders' tangible equity to tangible assets (3)   10.61 %   10.39 %   10.83 %        
Consolidated Tier 1 leverage capital ratio   11.33 %   11.49 %   11.83 %        


(1 ) The December 31, 2017 amounts for retained earnings and accumulated other comprehensive income are considered preliminary pending the issuance of a proposed accounting standard update addressing certain impacts of the Tax Cuts and Jobs Act which would result in a reclassification between retained earnings and other accumulated comprehensive income.
(2 ) Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(3 ) 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   Dec 31,
2017
  Sep 30,
 2017
  Dec 31,
2016
  Prior
Qtr
  Prior
Yr Qtr
                     
Commercial real estate:                    
Owner occupied   $ 1,284,363     $ 1,369,130     $ 1,352,999     (6.2 )%   (5.1 )%
Investment properties   1,937,423     1,993,144     1,986,336     (2.8 )%   (2.5 )%
Multifamily real estate   314,188     311,706     248,150     0.8 %   26.6 %
Commercial construction   148,435     157,041     124,068     (5.5 )%   19.6 %
Multifamily construction   154,662     136,532     124,126     13.3 %   24.6 %
One- to four-family construction   415,327     399,361     375,704     4.0 %   10.5 %
Land and land development:                        
Residential   164,516     158,384     170,004     3.9 %   (3.2 )%
Commercial   24,583     27,095     29,184     (9.3 )%   (15.8 )%
Commercial business   1,279,894     1,311,409     1,207,879     (2.4 )%   6.0 %
Agricultural business including secured by farmland   338,388     339,932     369,156     (0.5 )%   (8.3 )%
One- to four-family real estate   848,289     869,556     813,077     (2.4 )%   4.3 %
Consumer:                        
Consumer secured by one- to four-family real estate   522,931     535,300     493,211     (2.3 )%   6.0 %
Consumer-other   165,885     165,859     157,254     %   5.5 %
Total loans receivable   $ 7,598,884     $ 7,774,449     $ 7,451,148     (2.3 )%   2.0 %
Restructured loans performing under their restructured terms   $ 16,115     $ 12,744     $ 18,907          
Loans 30 - 89 days past due and on accrual (1)   $ 29,278     $ 9,619     $ 11,571          
Total delinquent loans (including loans on non-accrual), net (2)   $ 50,503     $ 34,792     $ 30,553          
Total delinquent loans / Total loans outstanding   0.66 %   0.45 %   0.41 %        
                           
(1) Includes $943,000 of purchased credit-impaired loans at December 31, 2017 compared to $1.0 million at September 30, 2017, and $470,000 at December 31, 2016.
(2) Delinquent loans include $2.2 million of delinquent purchased credit-impaired loans December 31, 2017 compared to $2.9 million at September 30, 2017, and $1.7 million at December 31, 2016.


LOANS BY GEOGRAPHIC LOCATION   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016
    Amount   Percentage   Amount   Percentage   Amount   Percentage
                         
Washington   $ 3,508,542     46.2 %   $ 3,515,881     45.2 %   $ 3,433,617     46.1 %
Oregon   1,590,233     20.9 %   1,561,723     20.1 %   1,505,369     20.2 %
California   1,415,076     18.6 %   1,381,572     17.8 %   1,239,989     16.6 %
Idaho   492,603     6.5 %   495,041     6.4 %   495,992     6.7 %
Utah   73,382     1.0 %   304,740     3.9 %   283,890     3.8 %
Other   519,048     6.8 %   515,492     6.6 %   492,291     6.6 %
Total loans   $ 7,598,884     100.0 %   $ 7,774,449     100.0 %   $ 7,451,148     100.0 %


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
      Quarters Ended   Twelve months ended
CHANGE IN THE   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
ALLOWANCE FOR LOAN LOSSES                    
Balance, beginning of period   $ 89,100     $ 88,586     $ 84,220     $ 85,997     $ 78,008  
Provision for loan losses   2,000     2,000     2,030     8,000     6,030  
Recoveries of loans previously charged off:                    
Commercial real estate   19     19     484     372     582  
Multifamily real estate               11      
Construction and land   57     73     903     1,237     2,171  
One- to four-family real estate   8     8     231     270     1,283  
Commercial business   305     577     218     1,226     1,993  
Agricultural business, including secured by farmland   1     1     20     134     59  
Consumer   188     98     81     481     610  
    578     776     1,937     3,731     6,698  
Loans charged off:                    
Commercial real estate   (549 )   (584 )   (566 )   (1,180 )   (746 )
One- to four-family real estate   (38 )       (249 )   (38 )   (375 )
Commercial business   (517 )   (491 )   (305 )   (3,803 )   (948 )
Agricultural business, including secured by farmland   (1,110 )   (1,001 )       (2,374 )   (567 )
Consumer   (436 )   (186 )   (454 )   (1,305 )   (1,487 )
    (2,650 )   (2,262 )   (2,190 )   (8,700 )   (4,739 )
Net (charge-offs) recoveries   (2,072 )   (1,486 )   (253 )   (4,969 )   1,959  
Balance, end of period   $ 89,028     $ 89,100     $ 85,997     $ 89,028     $ 85,997  
Net (charge-offs) recoveries / Average loans outstanding   (0.027 )%   (0.019 )%   (0.003 )%   (0.065 )%   0.026 %


ALLOCATION OF            
ALLOWANCE FOR LOAN LOSSES   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016
Specific or allocated loss allowance:            
Commercial real estate   $ 22,824     $ 23,431     $ 20,993  
Multifamily real estate   1,633     1,625     1,360  
Construction and land   27,568     29,422     34,252  
One- to four-family real estate   2,055     2,040     2,238  
Commercial business   18,311     18,657     16,533  
Agricultural business, including secured by farmland   4,053     3,949     2,967  
Consumer   3,866     4,016     4,104  
Total allocated   80,310     83,140     82,447  
Unallocated   8,718     5,960     3,550  
Total allowance for loan losses   $ 89,028     $ 89,100     $ 85,997  
Allowance for loan losses / Total loans outstanding   1.17 %   1.15 %   1.15 %
Allowance for loan losses / Non-performing loans   329 %   296 %   381 %


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
  Dec 31, 2017   Sep 30, 2017   Dec 31, 2016
NON-PERFORMING ASSETS          
Loans on non-accrual status:          
Secured by real estate:          
Commercial $ 10,646     $ 11,632     $ 8,237  
Construction and land 798     1,726     1,748  
One- to four-family 3,264     2,878     2,263  
Commercial business 3,406     7,144     3,074  
Agricultural business, including secured by farmland 6,132     4,285     3,229  
Consumer 1,297     1,462     1,875  
  25,543     29,127     20,426  
Loans more than 90 days delinquent, still on accrual:          
Secured by real estate:          
Commercial     53     701  
Multifamily         147  
Construction and land 298          
One- to four-family 1,085     722     1,233  
Commercial business 18     51      
Consumer 85     101     72  
  1,486     927     2,153  
Total non-performing loans 27,029     30,054     22,579  
Real estate owned (REO) 360     1,496     11,081  
Other repossessed assets 107     145     166  
Total non-performing assets $ 27,496     $ 31,695     $ 33,826  
Total non-performing assets to total assets 0.28 %   0.30 %   0.35 %
Purchased credit-impaired loans, net $ 21,310     $ 23,221     $ 32,322  


  Quarters Ended   Twelve months ended
REAL ESTATE OWNED Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
Balance, beginning of period $ 1,496     $ 2,427     $ 4,717     $ 11,081     $ 11,627  
Additions from loan foreclosures         8,375     46     8,909  
Additions from acquisitions                 400  
Additions from capitalized costs             54      
Proceeds from dispositions of REO (2,092 )   (961 )   (2,791 )   (13,474 )   (10,812 )
Gain on sale of REO 956     30     852     2,909     1,833  
Valuation adjustments in the period         (72 )   (256 )   (876 )
Balance, end of period $ 360     $ 1,496     $ 11,081     $ 360     $ 11,081  



ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
                     
DEPOSIT COMPOSITION               Percentage Change
    Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Prior Qtr   Prior Yr
                     
Non-interest-bearing   $ 3,265,544     $ 3,379,841     $ 3,140,451     (3.4 )%   4.0 %
Interest-bearing checking   971,137     955,486     914,484     1.6 %   6.2 %
Regular savings accounts   1,557,500     1,577,292     1,523,391     (1.3 )%   2.2 %
Money market accounts   1,422,313     1,525,657     1,497,755     (6.8 )%   (5.0 )%
Total interest-bearing transaction and savings accounts   3,950,950     4,058,435     3,935,630     (2.6 )%   0.4 %
Interest-bearing certificates   966,937     1,100,574     1,045,333     (12.1 )%   (7.5 )%
Total deposits   $ 8,183,431     $ 8,538,850     $ 8,121,414     (4.2 )%   0.8 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016
    Amount   Percentage   Amount   Percentage   Amount   Percentage
Washington   $ 4,506,249     55.0 %   $ 4,654,406     54.6 %   $ 4,347,644     53.6 %
Oregon   1,797,147     22.0 %   1,811,459     21.2 %   1,708,973     21.0 %
California   1,432,819     17.5 %   1,442,727     16.9 %   1,469,748     18.1 %
Idaho   447,216     5.5 %   465,104     5.4 %   447,019     5.5 %
Utah       %   165,154     1.9 %   148,030     1.8 %
Total deposits   $ 8,183,431     100.0 %   $ 8,538,850     100.0 %   $ 8,121,414     100.0 %


INCLUDED IN TOTAL DEPOSITS   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016
Public non-interest-bearing accounts   $ 86,987     $ 86,262     $ 92,789  
Public interest-bearing transaction & savings accounts   111,732     108,257     128,976  
Public interest-bearing certificates   23,685     26,543     25,650  
Total public deposits   $ 222,404     $ 221,062     $ 247,415  
Total brokered deposits   $ 57,228     $ 171,718     $ 34,074  


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 DECEMBER 31, 2017   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
  Total capital to risk-weighted assets   $ 1,213,835     13.80 %   $ 703,508     8.00 %   $ 879,385     10.00 %
  Tier 1 capital to risk-weighted assets   1,122,358     12.76 %   527,631     6.00 %   527,631     6.00 %
  Tier 1 leverage capital to average assets   1,122,358     11.33 %   396,313     4.00 %     n/a     n/a  
  Common equity tier 1 capital to risk-weighted assets   993,284     11.30 %   395,723     4.50 %     n/a     n/a  
Banner Bank:                                          
  Total capital to risk-weighted assets   1,101,432     12.82 %   687,266     8.00 %   859,083     10.00 %
  Tier 1 capital to risk-weighted assets   1,012,316     11.78 %   515,450     6.00 %   687,266     8.00 %
  Tier 1 leverage capital to average assets   1,012,316     10.52 %   384,920     4.00 %   481,150     5.00 %
  Common equity tier 1 capital to risk-weighted assets   1,012,316     11.78 %   386,587     4.50 %   558,404     6.50 %
Islanders Bank:                                          
  Total capital to risk-weighted assets   32,090     16.37 %   15,681     8.00 %   19,602     10.00 %
  Tier 1 capital to risk-weighted assets   29,729     15.17 %   11,761     6.00 %   15,681     8.00 %
  Tier 1 leverage capital to average assets   29,729     10.63 %   11,183     4.00 %   13,979     5.00 %
  Common equity tier 1 capital to risk-weighted assets   29,729     15.17 %   8,821     4.50 %   12,741     6.50 %



ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
                       
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  December 31, 2017   September 30, 2017   December 31, 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 $ 6,064,650   $ 73,349   4.80 %   $ 6,086,554   $ 75,020   4.89 %   $ 5,960,506   $ 74,538   4.97 %
Commercial/agricultural loans 1,454,639   17,549   4.79 %   1,520,946   17,992   4.69 %   1,469,407   17,192   4.65 %
Consumer and other loans 144,412   2,247   6.17 %   140,758   2,209   6.23 %   141,133   2,185   6.16 %
Total loans(1) 7,663,701   93,145   4.82 %   7,748,258   95,221   4.88 %   7,571,046   93,915   4.93 %
Mortgage-backed securities 1,131,692   7,006   2.46 %   1,129,256   6,644   2.33 %   796,625   3,861   1.93 %
Other securities 459,065   3,028   2.62 %   473,808   3,192   2.67 %   469,377   3,062   2.60 %
Interest-bearing deposits with banks 60,109   191   1.26 %   51,607   159   1.22 %   91,625   95   0.41 %
FHLB stock 18,496   105   2.25 %   16,961   62   1.45 %   11,668   74   2.52 %
Total investment securities 1,669,362   10,330   2.46 %   1,671,632   10,057   2.39 %   1,369,295   7,092   2.06 %
Total interest-earning assets 9,333,063   103,475   4.40 %   9,419,890   105,278   4.43 %   8,940,341   101,007   4.49 %
Non-interest-earning assets 861,232         888,388         904,846      
Total assets $ 10,194,295         $ 10,308,278         $ 9,845,187      
Deposits:                      
Interest-bearing checking accounts $ 964,306   222   0.09 %   $ 946,585   218   0.09 %   $ 876,904   197   0.09 %
Savings accounts 1,567,845   550   0.14 %   1,557,475   538   0.14 %   1,470,548   493   0.13 %
Money market accounts 1,471,875   645   0.17 %   1,534,867   653   0.17 %   1,541,258   677   0.17 %
Certificates of deposit 1,024,069   1,694   0.66 %   1,151,725   1,780   0.61 %   1,089,337   1,237   0.45 %
Total interest-bearing deposits 5,028,095   3,111   0.25 %   5,190,652   3,189   0.24 %   4,978,047   2,604   0.21 %
Non-interest-bearing deposits 3,325,452     %   3,300,185     %   3,193,172     %
Total deposits 8,353,547   3,111   0.15 %   8,490,837   3,189   0.15 %   8,171,219   2,604   0.13 %
Other interest-bearing liabilities:                                                    
FHLB advances 204,502   766   1.49 %   165,586   569   1.36 %   32,932   79   0.95 %
Other borrowings 106,678   77   0.29 %   116,297   84   0.29 %   107,819   76   0.28 %
Junior subordinated debentures 140,212   1,257   3.56 %   140,212   1,226   3.47 %   140,212   1,077   3.06 %
Total borrowings 451,392   2,100   1.85 %   422,095   1,879   1.77 %   280,963   1,232   1.74 %
Total funding liabilities 8,804,939   5,211   0.23 %   8,912,932   5,068   0.23 %   8,452,182   3,836   0.18 %
Other non-interest-bearing liabilities(2) 63,654         67,918         67,536      
Total liabilities 8,868,593         8,980,850         8,519,718      
Shareholders' equity 1,325,702         1,327,428         1,325,469      
Total liabilities and shareholders' equity $ 10,194,295         $ 10,308,278         $ 9,845,187      
Net interest income/rate spread   $ 98,264   4.17 %     $ 100,210   4.20 %     $ 97,171   4.31 %
Net interest margin     4.18 %       4.22 %       4.32 %
Additional Key Financial Ratios:                                                
Return on average assets     (0.53 )%       0.97 %       0.92 %
Return on average equity     (4.05 )%       7.49 %       6.84 %
Average equity/average assets     13.00 %       12.88 %       13.46 %
Average interest-earning assets/average interest-bearing liabilities     170.33 %       167.83 %       170.00 %
Average interest-earning assets/average funding liabilities     106.00 %       105.69 %       105.78 %
Non-interest income/average assets     1.16 %       0.78 %       0.79 %
Non-interest expense/average assets     3.30 %       3.18 %       3.23 %
Efficiency ratio(4)     66.10 %       68.51 %       68.47 %
Adjusted efficiency ratio(5)     69.97 %       66.26 %       65.32 %


(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 Twelve months ended
  December 31, 2017   December 31, 2016
  Average
Balance
Interest and
Dividends
Yield/Cost(3)   Average
Balance
Interest and
Dividends
Yield/Cost(3)
Interest-earning assets:              
Mortgage loans $ 6,060,780   $ 295,377   4.87 %   $ 5,807,397   $ 282,419   4.86 %
Commercial/agricultural loans 1,485,985   70,266   4.73 %   1,485,390   68,405   4.61 %
Consumer and other loans 140,500   8,806   6.27 %   141,460   8,788   6.21 %
Total loans(1) 7,687,265   374,449   4.87 %   7,434,247   359,612   4.84 %
Mortgage-backed securities 1,043,599   24,535   2.35 %   931,111   19,328   2.08 %
Other securities 464,680   12,448   2.68 %   454,977   11,814   2.60 %
Interest-bearing deposits with banks 49,573   583   1.18 %   94,456   395   0.42 %
FHLB stock 16,379   269   1.64 %   16,119   328   2.03 %
Total investment securities 1,574,231   37,835   2.40 %   1,496,663   31,865   2.13 %
Total interest-earning assets 9,261,496   412,284   4.45 %   8,930,910   391,477   4.38 %
Non-interest-earning assets 892,050         904,181      
Total assets $ 10,153,546         $ 9,835,091      
Deposits:              
Interest-bearing checking accounts $ 933,978   850   0.09 %   $ 859,621   767   0.09 %
Savings accounts 1,559,042   2,138   0.14 %   1,370,014   1,796   0.13 %
Money market accounts 1,515,854   2,638   0.17 %   1,575,877   3,098   0.20 %
Certificates of deposit 1,116,304   6,647   0.60 %   1,208,702   5,444   0.45 %
Total interest-bearing deposits 5,125,178   12,273   0.24 %   5,014,214   11,105   0.22 %
Non-interest-bearing deposits 3,233,889     %   3,033,604     %
Total deposits 8,359,067   12,273   0.15 %   8,047,818   11,105   0.14 %
Other interest-bearing liabilities:                                  
FHLB advances 151,295   1,908   1.26 %   141,885   953   0.67 %
Other borrowings 111,903   317   0.28 %   108,427   310   0.29 %
Junior subordinated debentures 140,212   4,752   3.39 %   140,212   4,040   2.88 %
Total borrowings 403,410   6,977   1.73 %   390,524   5,303   1.36 %
Total funding liabilities 8,762,477   19,250   0.22 %   8,438,342   16,408   0.19 %
Other non-interest-bearing liabilities(2) 61,592         65,508      
Total liabilities 8,824,069         8,503,850      
Shareholders' equity 1,329,479         1,331,241      
Total liabilities and shareholders' equity $ 10,153,548         $ 9,835,091      
Net interest income/rate spread   $ 393,034   4.23 %     $ 375,069   4.19 %
Net interest margin     4.24 %       4.20 %
Additional Key Financial Ratios:                              
Return on average assets     0.60 %       0.87 %
Return on average equity     4.57 %       6.41 %
Average equity/average assets     13.09 %       13.54 %
Average interest-earning assets/average interest-bearing liabilities     167.52 %       165.24 %
Average interest-earning assets/average funding liabilities     105.69 %       105.84 %
Non-interest income/average assets     0.92 %       0.85 %
Non-interest expense/average assets     3.22 %       3.28 %
Efficiency ratio(4)     67.27 %       70.41 %
Adjusted efficiency ratio(5)     66.87 %       65.26 %


(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   Twelve months ended
  Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
Net interest income before provision for loan losses $ 98,264     $ 100,210     $ 97,171     $ 393,034     $ 375,069  
Total non-interest income 29,882     20,339     19,463     93,535     83,470  
Total GAAP revenue 128,146     120,549     116,634     486,569     458,539  
Exclude net loss (gain) on sale of securities 2,310     (270 )   (311 )   2,080     (843 )
Exclude change in valuation of financial instruments carried at fair value 1,013     493     1,148     2,844     2,620  
Exclude gain on sale of branches (12,189 )           (12,189 )    
Revenue from core operations (non-GAAP) $ 119,280     $ 120,772     $ 117,471     $ 479,304     $ 460,316  


NON-INTEREST INCOME FROM CORE OPERATIONS   Quarters Ended   Twelve months ended
    Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
Total non-interest income (GAAP)   $ 29,882     $ 20,339     $ 19,463     $ 93,535     $ 83,470  
Exclude net loss (gain) on sale of securities   2,310     (270 )   (311 )   2,080     (843 )
Exclude change in valuation of financial instruments carried at fair value   1,013     493     1,148     2,844     2,620  
Exclude gain on sale of branches   (12,189 )           (12,189 )    
Non-interest income from core operations (non-GAAP)   $ 21,016     $ 20,562     $ 20,300     $ 86,270     $ 85,247  


EARNINGS FROM CORE OPERATIONS   Quarters Ended   Twelve months ended
    Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
Net income (GAAP)   $ (13,548 )   $ 25,077     $ 22,804     $ 60,776     $ 85,385  
Exclude net loss (gain) on sale of securities   2,310     (270 )   (311 )   2,080     (843 )
Exclude change in valuation of financial instruments carried at fair value   1,013     493     1,148     2,844     2,620  
Exclude acquisition-related costs           788         11,733  
Exclude gain on sale of branches   (12,189 )           (12,189 )    
Exclude related tax expense (benefit)   3,192     (80 )   (585 )   2,615     (4,857 )
Exclude deferred tax asset write-down due to new tax law   42,630             42,630      
Total earnings from core operations (non-GAAP)   $ 23,408     $ 25,220     $ 23,844     $ 98,756     $ 94,038  
                     
Diluted (loss) earnings per share (GAAP)   $ (0.41 )   $ 0.76     $ 0.69     $ 1.84     $ 2.52  
Diluted core earnings per share (non-GAAP)   $ 0.71     $ 0.76     $ 0.72     $ 2.99     $ 2.78  


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Twelve months ended
    Dec 31, 2017   Sep 30, 2017   Dec 31, 2016   Dec 31, 2017   Dec 31, 2016
Non-interest expense (GAAP)   $ 84,709     $ 82,589     $ 79,857     $ 327,305     $ 322,869  
Exclude acquisition-related costs           (788 )       (11,733 )
Exclude CDI amortization   (1,457 )   (1,542 )   (1,722 )   (6,246 )   (7,061 )
Exclude state/municipal tax expense   (737 )   (780 )   (952 )   (2,594 )   (3,516 )
Exclude REO gain (loss)   941     (240 )   338     2,030     (175 )
Adjusted non-interest expense (non-GAAP)   $ 83,456     $ 80,027     $ 76,733     $ 320,495     $ 300,384  
                     
Net interest income before provision for loan losses (GAAP)   $ 98,264     $ 100,210     $ 97,171     $ 393,034     $ 375,069  
Non-interest income (GAAP)   29,882     20,339     19,463     93,535     83,470  
Total revenue   128,146     120,549     116,634     486,569     458,539  
Exclude net loss (gain) on sale of securities   2,310     (270 )   (311 )   2,080     (843 )
Exclude net change in valuation of financial instruments carried at fair value   1,013     493     1,148     2,844     2,620  
Exclude gain on sale of branches   (12,189 )           (12,189 )    
Adjusted revenue (non-GAAP)   $ 119,280     $ 120,772     $ 117,471     $ 479,304     $ 460,316  
                     
Efficiency ratio (GAAP)   66.10 %   68.51 %   68.47 %   67.27 %   70.41 %
Adjusted efficiency ratio (non-GAAP)   69.97 %   66.26 %   65.32 %   66.87 %   65.26 %


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS   Dec 31, 2017   Sep 30, 2017   Dec 31, 2016
Shareholders' equity (GAAP)   $ 1,272,626     $ 1,327,011     $ 1,305,710  
Exclude goodwill and other intangible assets, net   265,314     269,802     274,745  
Tangible common shareholders' equity (non-GAAP)   $ 1,007,312     $ 1,057,209     $ 1,030,965  
             
Total assets (GAAP)   $ 9,763,209     $ 10,443,086     $ 9,793,668  
Exclude goodwill and other intangible assets, net   265,314     269,802     274,745  
Total tangible assets (non-GAAP)   $ 9,497,895     $ 10,173,284     $ 9,518,923  
Common shareholders' equity to total assets (GAAP)   13.03 %   12.71 %   13.33 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   10.61 %   10.39 %   10.83 %
             
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE            
Tangible common shareholders' equity   $ 1,007,312     $ 1,057,209     $ 1,030,965  
Common shares outstanding at end of period   32,726,485     33,254,784     33,193,387  
Common shareholders' equity (book value) per share (GAAP)   $ 38.89     $ 39.90     $ 39.34  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 30.78     $ 31.79     $ 31.06  


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

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