Market Overview

Banner Corporation Reports Second Quarter Net Income of $32.4 Million, or $1.00 Per Diluted Share; Results Highlighted by Solid Growth in Revenue and Net Interest Margin Expansion

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WALLA WALLA, Wash., July 25, 2018 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported that growth in earning assets and improved net interest margin contributed to continuing solid revenue growth.  In addition, $2.1 million in miscellaneous non-interest income from the sale of its Poulsbo branch deposits and two former business locations contributed to the substantial increase in second quarter 2018 earnings.  Net income in the second quarter of 2018 increased 13% to $32.4 million, or $1.00 per diluted share, compared to $28.8 million, or $0.89 per diluted share, in the preceding quarter and increased 27% when compared to $25.5 million, or $0.77 per diluted share, in the second quarter a year ago when federal income tax rates were substantially higher.

In the first six months of 2018, net income increased 24% to $61.2 million, or $1.89 per diluted share, compared to $49.2 million, or $1.49 per diluted share, in the first six months of 2017.

"Banner's second quarter 2018 performance clearly demonstrates that our strategic plan continues to be effective, as we complete the build-out of the company's support infrastructure and improve operating leverage," stated Mark J. Grescovich, President and Chief Executive Officer. "Due to the hard work of our employees, we are successfully executing on our strategies and priorities to deliver sustainable profitability and revenue growth to shareholders.  Our core operating performance continues to reflect the success of our proven client-acquisition strategies, which are producing strong core revenue and a healthy net interest margin.  These factors contributed to a return on average assets of 1.25% for the quarter.  Additionally, our continuing strong earnings trends allowed us to declare a special dividend of $0.50 per share in addition to the regular quarterly dividend of $0.35 per share, which were both paid on July 29, 2018, while effectively managing and maintaining a solid capital position."

At June 30, 2018, Banner Corporation had $10.38 billion in assets, $7.59 billion in net loans and $8.53 billion in deposits.  Banner operates 177 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Second Quarter 2018 Highlights

  • Net income increased 13% to $32.4 million, or $1.00 per diluted share, compared to $28.8 million, or $0.89 per diluted share, in the preceding quarter and increased 27% compared to $25.5 million, or $0.77 per diluted share, in the second quarter a year ago.
  • Net interest income, before the provision for loan losses, increased 6% to $105.1 million, compared to $99.4 million in the preceding quarter and increased 5% from $99.7 million in the second quarter a year ago.
  • Net interest margin was 4.39% for the current quarter, compared to 4.35% in the preceding quarter and 4.33% in the second quarter a year ago.
  • Revenues were $126.3 million during the quarter ended June 30, 2018, $120.7 million during the preceding quarter and $120.1 million during the second quarter a year ago.
  • Return on average assets was 1.25% in the current quarter, compared to 1.16% in the preceding quarter and 1.01% in the second quarter a year ago.
  • Return on average equity was 10.25% in the current quarter, compared to 9.14% in the preceding quarter and 7.60% in the second quarter a year ago.
  • Provision for loan losses remained steady at $2.0 million, increasing the allowance for loan losses to $93.9 million or 1.22% of total loans compared to an allowance for loan losses of $88.6 million or 1.17% of total loans as of June 30, 2017.
  • Net loans receivable were $7.59 billion at June 30, 2018, compared to $7.46 billion at both March 31, 2018, and June 30, 2017.
  • Core deposits increased 1% compared to June 30, 2017, and represented 87% of total deposits at June 30, 2018.
  • Quarterly dividends to shareholders were $0.35 per share, and a special cash dividend of $0.50 per share was also declared.
  • Tangible common shareholders' equity per share* was $30.57 at June 30, 2018, compared to $30.54 at the preceding quarter end and $31.21 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 9.79% at June 30, 2018, compared to 9.85% at the preceding quarter end and 10.46% a year ago.
  • Non-performing assets declined by $7.0 million to $16.5 million or 0.16% of total assets at June 30, 2018 and were $24.5 million or 0.24% of total assets a year ago.

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

Certain reclassifications have been made to the 2017 Consolidated Financial Statements and/or schedules to conform to the 2018 presentation.  These reclassifications have affected certain line items and ratios for the prior periods but have not changed net income or shareholders' equity for those periods.  The effect of these reclassifications is considered immaterial.

Significant Recent Initiatives and Events

On May 11, 2018, Banner Bank completed the sale of its Poulsbo, Washington, branch deposits totaling $20.4 million to Liberty Bay Bank, recording a deposit premium of $249,000.  In addition, during the second quarter of 2018 Banner Bank sold two former business locations, recording a combined net gain of $1.9 million.

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 $253.8 million in loans and $160.3 million in deposits.

During the fourth quarter of 2017, Banner recorded a one-time net tax charge of $42.6 million, or $1.30 per diluted share, related to the revaluation of deferred tax items as a result of the Tax Cuts and Jobs Act.  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 certain enhanced regulatory requirements and the Durbin Amendment to the Dodd-Frank Act limits on, among other things, debit card interchange fees.  Based on current debit card transaction volumes, Banner anticipates that the Durbin Amendment will have a $13 million annualized negative impact on pre-tax revenues commencing in July 2019.

In December 2017, Banner sold approximately $470 million of investment securities in the available-for-sale portfolio, using the proceeds to fund loan originations 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 produced tax benefits based upon the 2017 marginal federal income tax rate of 35%.  Beginning in 2018 net interest income on investment securities is subject to the new lower 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.

Income Statement Review

"We benefited from rising interest rates during the quarter, which produced higher yields on loans and improved our net interest margin," said Grescovich.  Banner's net interest margin was 4.39% for the second quarter of 2018, a four basis point improvement compared to 4.35% in the preceding quarter and a six basis point improvement compared to 4.33% in the second quarter a year ago.  Acquisition accounting adjustments, principally loan discount accretion, added six basis points to the net interest margin in the current quarter compared to eight basis points in the preceding quarter and 15 basis points in the second quarter a year ago.  The total purchase discount for acquired loans was $18.1 million at June 30, 2018, a decrease from $19.4 million at March 31, 2018 and $25.8 million a year ago, primarily as a result of discount accretion.  In the first six months of the year, Banner's net interest margin expanded eight basis points to 4.37% compared to 4.29% in the first six months a year ago.

Average interest-earning asset yields increased 11 basis points to 4.70% compared to 4.59% for the preceding quarter and increased 17 basis points compared to 4.53% in the second quarter a year ago.  Average loan yields increased 17 basis points to 5.15% compared to 4.98% for both the preceding quarter and second quarter a year ago.  Loan discount accretion added eight basis points to loan yields in the second quarter, compared to ten basis points in the preceding quarter and 18 basis points in the second quarter a year ago.  Deposit costs were 0.20% in the second quarter, a four basis point increase compared to the preceding quarter and a five basis point increase compared to the second quarter a year ago.  The total cost of funds was 0.33% during the second quarter, an eight basis point increase compared to the preceding quarter and an 11 basis point increase compared to the second quarter a year ago largely reflecting increased borrowing costs.

Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, Banner recorded a $2.0 million provision for loan losses during the second quarter, the same as in both the preceding and year ago quarters as credit quality metrics remained very strong.

Deposit fees and other service charges were $12.0 million in the second quarter, compared to $11.3 million in the preceding quarter and $11.2 million in the second quarter a year ago.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $4.6 million in the second quarter compared to $4.9 million in the preceding quarter and $6.8 million in the second quarter of 2017.  Home purchase activity accounted for 81% of second quarter 2018 one- to four-family mortgage loan originations.

Second quarter 2018 results included a $224,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally certain investment securities held for trading, and $44,000 net gain on the sale of securities.  In the preceding quarter, results included a $3.3 million net gain for fair value adjustments. In the second quarter a year ago, results included a $650,000 net loss for fair value adjustments and a $54,000 net loss on the sale of securities.  Following the adoption of new accounting guidance, beginning in the preceding quarter, Banner no longer reflects changes in the fair value of its junior subordinated debentures related to instrument-specific credit risk in the Consolidated Statements of Operations, but rather reports those changes in the Consolidated Statements of Comprehensive Income and includes them in total shareholders' equity in the Consolidated Statements of Financial Condition.

Total revenues increased 5% to $126.3 million for the second quarter of 2018, compared to $120.7 million in the preceding quarter and $120.1 million in the second quarter a year ago.  In the first six months of 2018, total revenues increased 6% to $247.0 million, compared to $234.0 million in the first six months of 2017.  Revenues from core operations* (revenues excluding gains and losses on the sale of securities and the net change in valuation of financial instruments) increased to $126.0 million in the second quarter of 2018, compared to $117.4 million in the preceding quarter, and $120.8 million in the second quarter of 2017.  In the first six months of 2018, revenues from core operations* increased to $243.4 million from $235.4 million in the first six months a year ago.

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 $21.2 million in the second quarter of 2018, compared to $21.4 million in the first quarter of 2018 and $20.4 million in the second quarter a year ago.  In the first six months of 2018, total non-interest income was $42.6 million, compared to $39.4 million in the same period a year ago.

Banner's total non-interest expense was $82.6 million in the second quarter of 2018, compared to $81.7 million in the preceding quarter and $79.9 million in the second quarter of 2017.  In addition to normal wage increases, the current and preceding quarter's non-interest expenses included increased salary and employee benefits as compared to the second quarter a year ago largely due to enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out.  Banner's adjusted efficiency ratio* improved to 64.09% for the current quarter, compared to 67.42% in the prior quarter and 64.83% in the year ago quarter.

For the second quarter of 2018, Banner recorded $9.2 million in state and federal income tax expense for an effective tax rate of 22.1%, reflecting the new lower federal corporate income tax rate beginning in 2018, and for the year ago quarter, Banner recorded $12.8 million in state and federal income tax expense for an effective tax rate of 33.4%.

Balance Sheet Review

Banner's total assets were $10.38 billion at June 30, 2018, compared to $10.32 billion at March 31, 2018, and $10.20 billion at June 30, 2017.  The total of securities and interest-bearing deposits held at other banks was $1.74 billion at June 30, 2018, compared to $1.75 billion at March 31, 2018 and $1.66 billion at June 30, 2017.  The increase in the securities portfolio during both the current quarter and preceding quarter compared to December 31, 2017, reflects Banner's renewed leveraging strategy as it crossed the $10 billion in total assets threshold.  In the fourth quarter of 2017, 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, 2017, to postpone the adverse impact of the Durbin Amendment.  The average effective duration of Banner's securities portfolio was approximately 4.0 years at June 30, 2018, compared to 3.5 years at June 30, 2017.

Net loans receivable increased 2% to $7.59 billion at June 30, 2018, compared to $7.46 billion at both March 31, 2018 and June 30, 2017.  The sale of our Utah branches in the fourth quarter of 2017 included the sale of $253.8 million of loans.  Commercial real estate and multifamily real estate loans increased slightly to $3.51 billion at June 30, 2018, compared to $3.48 billion at March 31, 2018, but decreased compared to $3.62 billion a year ago, reflecting significant payoffs of both owner occupied and investment commercial real estate loans, partially offset by growth in multifamily real estate loans.  Commercial business loans increased modestly to $1.31 billion at June 30, 2018, compared to $1.30 billion three months earlier and increased 2% compared to $1.29 billion a year ago.  Reflecting normal seasonal trends, agricultural business loans increased by 10% to $336.7 million at June 30, 2018, compared to $307.2 million three months earlier and were $344.4 million a year ago.  Total construction, land and land development loans increased 3% to $980.4 million at June 30, 2018, compared to $948.7 million at March 31, 2018, and increased 21% compared to $811.5 million a year earlier.  Consumer loans increased 2% to $706.8 million at June 30, 2018, compared to $693.0 million at March 31, 2018, and increased 3% compared to $687.8 million a year ago.  One- to four-family loans increased modestly to $840.5 million compared to $833.6 million at March 31, 2018, and increased 5% compared to $800.0 million a year ago.

Loans held for sale decreased 44% to $78.8 million at June 30, 2018, compared to $141.8 million at March 31, 2018, but increased 19% compared to $66.2 million at June 30, 2017.  The volume of one- to four- family residential mortgage loans sold remained relatively constant at $124.1 million in the current quarter compared to $124.5 million in the preceding quarter and was $131.1 million in the second quarter a year ago.  During the current quarter Banner sold $135.7 million in multifamily loans compared to none during the quarter ended March 31, 2018, and $114.8 million in multifamily loans sold during the second quarter a year ago.  Loans held for sale at June 30, 2018 included $51.3 million of multifamily loans and $27.6 million of one- to four-family loans.

Total deposits were $8.53 billion at June 30, 2018, compared to $8.54 billion at March 31, 2018, and increased modestly compared to $8.48 billion a year ago, as strong core deposit growth over the last year was partially offset by continuing declines in retail or non-brokered certificates of deposit.  The sale of $20.4 million of Poulsbo Branch deposits during the current quarter contributed to the slight decline in deposits compared to the prior quarter.  Compared to a year earlier, total deposits at June 30, 2018, were negatively impacted by the sale of the Utah branches during the fourth quarter of 2017 which included $160.3 million of deposits.  Non-interest-bearing account balances decreased slightly to $3.35 billion at June 30, 2018, compared to $3.38 billion at March 31, 2018, and increased 3% compared to $3.25 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased 2% from the prior quarter and increased 1% compared to June 30, 2017, despite the sale of the Utah branches.  Core deposits represented 87% of total deposits at June 30, 2018, compared to 88% of total deposits at March 31, 2018, and 86% of total deposits a year earlier.  Certificates of deposit were $1.15 billion at June 30, 2018, compared to $1.02 million at March 31, 2018, and $1.21 billion a year earlier.  Brokered deposits increased to $280.1 million at June 30, 2018, compared to $169.5 million at March 31, 2018, and were $250.0 million a year earlier.  The average cost of deposits was 0.20% for the quarter ended June 30, 2018, compared to 0.16% in the preceding quarter and 0.15% in the quarter ended June 30, 2017.

At June 30, 2018, total common shareholders' equity was $1.25 billion, or $38.67 per share, compared to $1.25 billion at March 31, 2018, and $1.31 billion a year ago.  At June 30, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $990.5 million, or 9.79% of tangible assets*, compared to $990.2 million, or 9.85% of tangible assets, at March 31, 2018 and $1.04 billion, or 10.46% of tangible assets, a year ago.  Banner's tangible book value per share* was $30.57 at June 30, 2018, compared to $31.21 per share a year ago.

During the first quarter of 2018, Banner repurchased 269,711 shares of its common stock at an average price per share of $56.93 for a total purchase price of $15.4 million.  There were no repurchases during the second quarter of 2018.  Banner Corporation and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as "well-capitalized" under the Basel III and Dodd Frank regulatory standards.  At June 30, 2018, Banner Corporation's common equity Tier 1 capital ratio was 11.05%, its Tier 1 leverage capital to average assets ratio was 10.80%, and its total capital to risk-weighted assets ratio was 13.73%.

Credit Quality

"Credit quality remained strong again during the quarter, which further solidifies the moderate risk profile of our loan portfolio and positions us well for the future," said Grescovich.  The allowance for loan losses was $93.9 million at June 30, 2018, or 1.22% of total loans outstanding and 613% of non-performing loans compared to $92.2 million at March 31, 2018, or 1.22% of total loans outstanding and 410% of non-performing loans, and $88.6 million at June 30, 2017, or 1.17% of total loans outstanding and 405% of non-performing loans.  Net loan charge-offs totaled $332,000 in the second quarter compared to net loan recoveries of $1.2 million in the preceding quarter and $59,000 in the second quarter a year ago.  Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and 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 declined to $15.3 million at June 30, 2018, compared to $22.5 million at March 31, 2018 and $21.9 million a year ago.  Real estate owned and other repossessed assets were $1.2 million at June 30, 2018, compared to $1.0 million at March 31, 2018 and $2.6 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans' contractual amounts, a portion of which reflects a discount for possible credit losses.  Credit discounts are included in the determination of fair value, and as a result, no allowance for loan 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.  At June 30, 2018, the total purchase discount for acquired loans was $18.1 million.

Banner's non-performing assets were $16.5 million, or 0.16% of total assets, at June 30, 2018, compared to $23.5 million, or 0.23% of total assets, at March 31, 2018 and $24.5 million, or 0.24% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $18.1 million at June 30, 2018, compared to $19.3 million at March 31, 2018 and $26.3 million a year ago.

Conference Call

Banner will host a conference call on Thursday, July 26, 2018, at 8:00 a.m. PDT, to discuss its second quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10121440, or at www.bannerbank.com.

About the Company

Banner Corporation is a $10.38 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   Six months ended
(in thousands except shares and per share data)   Jun 30, 2018   Mar 31, 2018   Jun 30, 2017   Jun 30, 2018   Jun 30, 2017
                     
INTEREST INCOME:                    
Loans receivable   $ 99,853     $ 94,022     $ 94,795     $ 193,875     $ 186,083  
Mortgage-backed securities   8,899     7,331     6,239     16,230     10,886  
Securities and cash equivalents   3,671     3,467     3,402     7,138     6,563  
    112,423     104,820     104,436     217,243     203,532  
INTEREST EXPENSE:                    
Deposits   4,264     3,358     3,182     7,622     5,973  
Federal Home Loan Bank advances   1,499     677     301     2,177     574  
Other borrowings   49     70     83     119     157  
Junior subordinated debentures   1,548     1,342     1,164     2,889     2,268  
    7,360     5,447     4,730     12,807     8,972  
Net interest income before provision for loan losses   105,063     99,373     99,706     204,436     194,560  
PROVISION FOR LOAN LOSSES   2,000     2,000     2,000     4,000     4,000  
Net interest income   103,063     97,373     97,706     200,436     190,560  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   11,985     11,296     11,165     23,281     21,553  
Mortgage banking operations   4,643     4,864     6,754     9,507     11,357  
Bank owned life insurance   933     853     1,461     1,785     2,556  
Miscellaneous   3,388     1,037     1,720     4,426     5,356  
    20,949     18,050     21,100     38,999     40,822  
Net gain (loss) on sale of securities   44     4     (54 )   48     (41 )
Net change in valuation of financial instruments carried at fair value   224     3,308     (650 )   3,532     (1,338 )
Total non-interest income   21,217     21,362     20,396     42,579     39,443  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   51,494     50,067     49,019     101,561     95,083  
Less capitalized loan origination costs   (4,733 )   (4,011 )   (4,598 )   (8,744 )   (8,914 )
Occupancy and equipment   11,574     11,766     12,045     23,340     24,041  
Information / computer data services   4,564     4,381     4,100     8,945     8,094  
Payment and card processing services   3,731     3,700     3,719     7,431     6,942  
Professional services   3,838     4,428     3,732     8,266     8,885  
Advertising and marketing   2,141     1,830     1,766     3,971     3,095  
Deposit insurance   1,021     1,341     1,071     2,362     2,337  
State/municipal business and use taxes   816     713     279     1,529     1,078  
Real estate operations   (319 )   439     (363 )   121     (1,329 )
Amortization of core deposit intangibles   1,382     1,382     1,624     2,764     3,248  
Miscellaneous   7,128     5,670     7,463     12,797     13,577  
Total non-interest expense   82,637     81,706     79,857     164,343     156,137  
Income before provision for income taxes   41,643     37,029     38,245     78,672     73,866  
PROVISION FOR INCOME TAXES   9,219     8,239     12,791     17,458     24,619  
NET INCOME   $ 32,424     $ 28,790     $ 25,454     $ 61,214     $ 49,247  
                     
Earnings per share available to common shareholders:                    
Basic   $ 1.01     $ 0.89     $ 0.77     $ 1.89     $ 1.49  
Diluted   $ 1.00     $ 0.89     $ 0.77     $ 1.89     $ 1.49  
Cumulative dividends declared per common share   $ 0.85     $ 0.35     $ 1.25     $ 1.20     $ 1.50  
                                         
Weighted average common shares outstanding:                    
Basic   32,250,514     32,397,568     32,982,126     32,323,635     32,957,920  
Diluted   32,331,609     32,516,456     33,051,527     32,422,287     33,052,205  
                               
(Decrease) increase in common shares outstanding   (17,977 )   (302,812 )   125,167     (320,789 )   84,644  
                               


                     
FINANCIAL CONDITION                   Percentage Change
(in thousands except shares and per share data)   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017   Prior
Qtr
  Prior
Yr Qtr
                         
ASSETS                        
Cash and due from banks   $ 195,652     $ 188,418     $ 199,624     $ 196,178     3.8 %   (0.3 )%
Interest-bearing deposits   53,773     53,630     61,576     77,370     0.3 %   (30.5 )%
Total cash and cash equivalents   249,425     242,048     261,200     273,548     3.0 %   (8.8 )%
                                     
Securities - trading   25,640     25,574     22,318     24,950     0.3 %   2.8 %
Securities - available for sale   1,400,312     1,406,505     919,485     1,290,159     (0.4 )%   8.5 %
Securities - held to maturity   263,176     262,645     260,271     268,050     0.2 %   (1.8 )%
Federal Home Loan Bank stock   19,916     18,036     10,334     12,334     10.4 %   61.5 %
Loans held for sale   78,833     141,808     40,725     66,164     (44.4 )%   19.1 %
Loans receivable   7,684,732     7,556,046     7,598,884     7,551,563     1.7 %   1.8 %
Allowance for loan losses   (93,875 )   (92,207 )   (89,028 )   (88,586 )   1.8 %   6.0 %
Net loans receivable   7,590,857     7,463,839     7,509,856     7,462,977     1.7 %   1.7 %
                                     
Accrued interest receivable   34,004     32,824     31,259     30,722     3.6 %   10.7 %
Real estate owned held for sale, net   473     328     360     2,427     44.2 %   (80.5 )%
Property and equipment, net   153,224     156,005     154,815     161,095     (1.8 )%   (4.9 )%
Goodwill   242,659     242,659     242,659     244,583     %   (0.8 )%
Other intangibles, net   19,858     21,251     22,655     26,813     (6.6 )%   (25.9 )%
Bank-owned life insurance   164,225     163,519     162,668     160,609     0.4 %   2.3 %
Other assets   136,592     140,223     124,604     175,389     (2.6 )%   (22.1 )%
                                             
Total assets   $ 10,379,194     $ 10,317,264     $ 9,763,209     $ 10,199,820     0.6 %   1.8 %
LIABILITIES                        
Deposits:                        
Non-interest-bearing   $ 3,346,777     $ 3,383,439     $ 3,265,544     $ 3,254,581     (1.1 )%   2.8 %
Interest-bearing transaction and savings accounts   4,032,283     4,141,268     3,950,950     4,022,909     (2.6 )%   0.2 %
Interest-bearing certificates   1,148,607     1,018,355     966,937     1,206,241     12.8 %   (4.8 )%
Total deposits   8,527,667     8,543,062     8,183,431     8,483,731     (0.2 )%   0.5 %
                                     
Advances from Federal Home Loan Bank at fair value   239,190     192,195     202     50,212     24.5 %   nm  
Customer repurchase agreements and other borrowings   112,458     101,844     95,860     116,455     10.4 %   (3.4 )%
Junior subordinated debentures at fair value   112,774     112,516     98,707     96,852     0.2 %   16.4 %
Accrued expenses and other liabilities   93,281     72,497     71,344     102,511     28.7 %   (9.0 )%
Deferred compensation   40,814     41,027     41,039     40,208     (0.5 )%   1.5 %
Total liabilities   9,126,184     9,063,141     8,490,583     8,889,969     0.7 %   2.7 %
                                     
SHAREHOLDERS' EQUITY                        
Common stock   1,173,656     1,172,960     1,187,127     1,215,316     0.1 %   (3.4 )%
Retained earnings   84,485     79,773     90,535     94,541     5.9 %   (10.6 )%
Other components of shareholders' equity   (5,131 )   1,390     (5,036 )   (6 )   nm     nm  
Total shareholders' equity   1,253,010     1,254,123     1,272,626     1,309,851     (0.1 )%   (4.3 )%
                                             
Total liabilities and shareholders' equity   $ 10,379,194     $ 10,317,264     $ 9,763,209     $ 10,199,820     0.6 %   1.8 %
Common Shares Issued:                        
Shares outstanding at end of period   32,405,696     32,423,673     32,726,485     33,278,031          
Common shareholders' equity per share (1)   $ 38.67     $ 38.68     $ 38.89     $ 39.36          
Common shareholders' tangible equity per share (1) (2)   $ 30.57     $ 30.54     $ 30.78     $ 31.21          
Common shareholders' tangible equity to tangible assets (2)   9.79 %   9.85 %   10.61 %   10.46 %        
Consolidated Tier 1 leverage capital ratio   10.80 %   11.06 %   11.33 %   11.51 %        


(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   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017   Prior
Qtr
  Prior
Yr Qtr
                         
Commercial real estate:                        
Owner occupied   $ 1,256,730     $ 1,278,814     $ 1,284,363     $ 1,358,094     (1.7 )%   (7.5 )%
Investment properties   1,920,790     1,876,937     1,937,423     1,975,075     2.3 %   (2.7 )%
Multifamily real estate   330,384     321,039     314,188     288,442     2.9 %   14.5 %
Commercial construction   166,089     163,314     148,435     144,092     1.7 %   15.3 %
Multifamily construction   147,576     159,108     154,662     111,562     (7.2 )%   32.3 %
One- to four-family construction   480,591     434,204     415,327     380,782     10.7 %   26.2 %
Land and land development:                        
Residential   163,335     167,783     164,516     147,149     (2.7 )%   11.0 %
Commercial   22,849     24,331     24,583     27,917     (6.1 )%   (18.2 )%
Commercial business   1,312,424     1,296,691     1,279,894     1,286,204     1.2 %   2.0 %
Agricultural business including secured by farmland   336,709     307,243     338,388     344,412     9.6 %   (2.2 )%
One- to four-family real estate   840,470     833,598     848,289     800,008     0.8 %   5.1 %
Consumer:                        
Consumer secured by one- to four-family real estate   536,007     522,826     522,931     527,623     2.5 %   1.6 %
Consumer-other   170,778     170,158     165,885     160,203     0.4 %   6.6 %
                                             
Total loans receivable   $ 7,684,732     $ 7,556,046     $ 7,598,884     $ 7,551,563     1.7 %   1.8 %
                                         
Restructured loans performing under their restructured terms   $ 13,793     $ 14,264     $ 16,115     $ 13,531          
                                         
Loans 30 - 89 days past due and on accrual (1)   $ 8,040     $ 23,557     $ 29,278     $ 15,564          
                                         
Total delinquent loans (including loans on non-accrual), net (2)   $ 22,620     $ 42,186     $ 50,503     $ 32,961          
                                 
Total delinquent loans / Total loans receivable   0.29 %   0.56 %   0.66 %   0.44 %        
                                 


(1)   Includes $6,000 of purchased credit-impaired loans at June 30, 2018 compared to $1.5 million at March 31, 2018, $943,000 at December 31, 2017, and $835,000 at June 30, 2017.
(2)   Delinquent loans include $1.0 million of delinquent purchased credit-impaired loans at June 30, 2018 compared to $2.3 million at March 31, 2018, $2.2 million at December 31, 2017, and $2.5 million at June 30, 2017.
     


                 
LOANS BY GEOGRAPHIC LOCATION   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017
    Amount   Percentage   Amount   Percentage   Amount   Percentage   Amount   Percentage
                                 
Washington   $ 3,550,945     46.2 %   $ 3,490,646     46.2 %   $ 3,508,542     46.2 %   $ 3,425,627     45.3 %
Oregon   1,601,939     20.9 %   1,580,278     20.9 %   1,590,233     20.9 %   1,532,460     20.3 %
California   1,477,293     19.2 %   1,405,411     18.6 %   1,415,076     18.6 %   1,304,194     17.3 %
Idaho   500,201     6.5 %   481,972     6.4 %   492,603     6.5 %   487,378     6.5 %
Utah   76,414     1.0 %   83,637     1.1 %   73,382     1.0 %   294,467     3.9 %
Other   477,940     6.2 %   514,102     6.8 %   519,048     6.8 %   507,437     6.7 %
Total loans receivable   $ 7,684,732     100.0 %   $ 7,556,046     100.0 %   $ 7,598,884     100.0 %   $ 7,551,563     100.0 %
                                                         


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
      Quarters Ended   Six months ended
CHANGE IN THE   Jun 30, 2018   Mar 31, 2018   Jun 30, 2017   Jun 30, 2018   Jun 30, 2017
ALLOWANCE FOR LOAN LOSSES                    
Balance, beginning of period   $ 92,207     $ 89,028     $ 86,527     $ 89,028     $ 85,997  
                                         
Provision for loan losses   2,000     2,000     2,000     4,000     4,000  
                               
Recoveries of loans previously charged off:                    
Commercial real estate   216     1,352     264     1,568     334  
Multifamily real estate           11         11  
Construction and land   11     174     1,024     185     1,107  
One- to four-family real estate   356     290     109     646     254  
Commercial business   100     170     171     270     344  
Agricultural business, including secured by farmland   41         19     41     132  
Consumer   106     112     101     218     195  
    830     2,098     1,699     2,928     2,377  
Loans charged off:                    
Commercial real estate   (299 )       (47 )   (299 )   (47 )
One- to four-family real estate       (16 )       (16 )    
Commercial business   (375 )   (519 )   (1,169 )   (894 )   (2,795 )
Agricultural business, including secured by farmland   (329 )   (7 )   (104 )   (336 )   (263 )
Consumer   (159 )   (377 )   (320 )   (536 )   (683 )
    (1,162 )   (919 )   (1,640 )   (2,081 )   (3,788 )
Net (charge-offs) recoveries   (332 )   1,179     59     847     (1,411 )
                               
Balance, end of period   $ 93,875     $ 92,207     $ 88,586     $ 93,875     $ 88,586  
                                         
Net (charge-offs) recoveries / Average loans receivable   (0.004 )%   0.015 %   0.001 %   0.011 %   (0.018 )%
                               


                 
ALLOCATION OF                
ALLOWANCE FOR LOAN LOSSES   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017
Specific or allocated loss allowance:                
Commercial real estate   $ 24,413     $ 23,461     $ 22,824     $ 24,232  
Multifamily real estate   3,718     2,592     1,633     1,562  
Construction and land   27,034     28,766     27,568     27,312  
One- to four-family real estate   3,932     3,779     2,055     2,010  
Commercial business   19,141     19,885     18,311     19,126  
Agricultural business, including secured by farmland   3,162     2,999     4,053     3,808  
Consumer   5,725     5,514     3,866     3,987  
Total allocated   87,125     86,996     80,310     82,037  
Unallocated   6,750     5,211     8,718     6,549  
                                 
Total allowance for loan losses   $ 93,875     $ 92,207     $ 89,028     $ 88,586  
                         
Allowance for loan losses / Total loans receivable   1.22 %   1.22 %   1.17 %   1.17 %
                         
Allowance for loan losses / Non-performing loans   613 %   410 %   329 %   405 %
                         


               
ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
  Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017
NON-PERFORMING ASSETS              
Loans on non-accrual status:              
Secured by real estate:              
Commercial $ 4,341     $ 6,877     $ 10,646     $ 6,267  
Construction and land 1,176     984     798     1,726  
One- to four-family 2,281     2,815     3,264     2,955  
Commercial business 2,673     3,037     3,406     7,037  
Agricultural business, including secured by farmland 1,712     6,120     6,132     1,456  
Consumer 1,176     1,237     1,297     1,494  
  13,359     21,070     25,543     20,935  
Loans more than 90 days delinquent, still on accrual:              
Secured by real estate:              
Construction and land 784         298      
One- to four-family 905     591     1,085     754  
Commercial business 1     1     18     77  
Agricultural business, including secured by farmland     820          
Consumer 253     7     85     108  
  1,943     1,419     1,486     939  
Total non-performing loans 15,302     22,489     27,029     21,874  
Real estate owned (REO) 473     328     360     2,427  
Other repossessed assets 733     694     107     181  
                       
Total non-performing assets $ 16,508     $ 23,511     $ 27,496     $ 24,482  
                               
Total non-performing assets to total assets 0.16 %   0.23 %   0.28 %   0.24 %
                               
Purchased credit-impaired loans, net $ 18,063     $ 19,316     $ 21,310     $ 26,267  
                               


       
  Quarters Ended   Six months ended
REAL ESTATE OWNED Jun 30, 2018   Mar 31, 2018   Jun 30, 2017   Jun 30, 2018   Jun 30, 2017
Balance, beginning of period $ 328     $ 360     $ 3,040     $ 360     $ 11,081  
Additions from loan foreclosures 393     128     46     521     46  
Additions from capitalized costs         54         54  
Proceeds from dispositions of REO (314 )       (1,228 )   (314 )   (10,421 )
Gain on sale of REO 66         721     66     1,923  
Valuation adjustments in the period     (160 )   (206 )   (160 )   (256 )
                             
Balance, end of period $ 473     $ 328     $ 2,427     $ 473     $ 2,427  
                                       


                         
ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                         
DEPOSIT COMPOSITION                   Percentage Change
    Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017   Prior Qtr   Prior Yr
                         
Non-interest-bearing   $ 3,346,777     $ 3,383,439     $ 3,265,544     $ 3,254,581     (1.1 )%   2.8 %
Interest-bearing checking   1,012,519     1,043,840     971,137     953,227     (3.0 )%   6.2 %
Regular savings accounts   1,635,080     1,637,814     1,557,500     1,530,517     (0.2 )%   6.8 %
Money market accounts   1,384,684     1,459,614     1,422,313     1,539,165     (5.1 )%   (10.0 )%
Total interest-bearing transaction and savings accounts   4,032,283     4,141,268     3,950,950     4,022,909     (2.6 )%   0.2 %
                                     
Interest-bearing certificates   1,148,607     1,018,355     966,937     1,206,241     12.8 %   (4.8 )%
                                     
Total deposits   $ 8,527,667     $ 8,543,062     $ 8,183,431     $ 8,483,731     (0.2 )%   0.5 %
                                             


                 
GEOGRAPHIC CONCENTRATION OF DEPOSITS   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017
    Amount   Percentage   Amount   Percentage   Amount   Percentage   Amount   Percentage
Washington   $ 4,735,357     55.6 %   $ 4,766,646     55.8 %   $ 4,506,249     55.0 %   $ 4,615,284     54.4 %
Oregon   1,886,435     22.1 %   1,868,043     21.9 %   1,797,147     22.0 %   1,806,639     21.3 %
California   1,444,413     16.9 %   1,454,421     17.0 %   1,432,819     17.5 %   1,445,621     17.0 %
Idaho   461,462     5.4 %   453,952     5.3 %   447,216     5.5 %   416,933     4.9 %
Utah       %       %       %   199,254     2.3 %
Total deposits   $ 8,527,667     100.0 %   $ 8,543,062     100.0 %   $ 8,183,431     100.0 %   $ 8,483,731     100.0 %
                                                         


                 
INCLUDED IN TOTAL DEPOSITS   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017
Public non-interest-bearing accounts   $ 86,040     $ 78,714     $ 86,987     $ 85,760  
Public interest-bearing transaction & savings accounts   114,457     111,597     111,732     124,075  
Public interest-bearing certificates   24,390     24,928     23,685     30,496  
                                 
Total public deposits   $ 224,887     $ 215,239     $ 222,404     $ 240,331  
                                 
Total brokered deposits   $ 280,055     $ 169,523     $ 57,228     $ 250,001  
                                 


             


ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
    Actual   Minimum to be
categorized as
"Adequately Capitalized"
  Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF JUNE 30, 2018   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
  Total capital to risk-weighted assets   $ 1,190,024     13.73 %   $ 693,399     8.00 %   $ 866,749   10.00 %
  Tier 1 capital to risk-weighted assets   1,093,700     12.62 %   520,049     6.00 %   520,049   6.00 %
  Tier 1 leverage capital to average assets   1,093,700     10.80 %   404,968     4.00 %   n/a   n/a  
  Common equity tier 1 capital to risk-weighted assets   957,700     11.05 %   390,037     4.50 %   n/a   n/a  
                                   
Banner Bank:                        
  Total capital to risk-weighted assets   1,108,529     13.08 %   677,868     8.00 %   847,335   10.00 %
  Tier 1 capital to risk-weighted assets   1,014,649     11.97 %   508,401     6.00 %   677,868   8.00 %
  Tier 1 leverage capital to average assets   1,014,649     10.31 %   393,726     4.00 %   492,157   5.00 %
  Common equity tier 1 capital to risk-weighted assets   1,014,649     11.97 %   381,301     4.50 %   550,768   6.50 %
                                   
Islanders Bank:                        
  Total capital to risk-weighted assets   33,330     16.98 %   15,701     8.00 %   19,627   10.00 %
  Tier 1 capital to risk-weighted assets   30,886     15.74 %   11,776     6.00 %   15,701   8.00 %
  Tier 1 leverage capital to average assets   30,886     11.03 %   11,202     4.00 %   14,002   5.00 %
  Common equity tier 1 capital to risk-weighted assets   30,886     15.74 %   8,832     4.50 %   12,757   6.50 %
                                   


                       
ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
                       
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  June 30, 2018   March 31, 2018   June 30, 2017
  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 $ 6,163,224   $ 78,203   5.09 %   $ 6,065,199   $ 74,346   4.97 %   $ 5,987,295   $ 74,459   4.99 %
Commercial/agricultural loans 1,479,148   19,381   5.26 %   1,456,303   17,423   4.85 %   1,503,548   18,179   4.85 %
Consumer and other loans 141,401   2,269   6.44 %   140,627   2,253   6.50 %   138,724   2,157   6.24 %
Total loans(1) 7,783,773   99,853   5.15 %   7,662,129   94,022   4.98 %   7,629,567   94,795   4.98 %
Mortgage-backed securities 1,261,809   8,899   2.83 %   1,057,878   7,331   2.81 %   1,067,255   6,239   2.34 %
Other securities 473,953   3,331   2.82 %   462,947   3,090   2.71 %   471,894   3,192   2.71 %
Interest-bearing deposits with banks 51,886   211   1.63 %   64,512   231   1.45 %   54,051   139   1.03 %
FHLB stock 22,231   129   2.33 %   16,549   146   3.58 %   14,472   71   1.97 %
Total investment securities 1,809,879   12,570   2.79 %   1,601,886   10,798   2.73 %   1,607,672   9,641   2.41 %
Total interest-earning assets 9,593,652   112,423   4.70 %   9,264,015   104,820   4.59 %   9,237,239   104,436   4.53 %
Non-interest-earning assets 804,229         805,503         896,136      
Total assets $ 10,397,881         $ 10,069,518         $ 10,133,375      
Deposits:                      
Interest-bearing checking accounts $ 1,051,409   281   0.11 %   $ 1,003,929   246   0.10 %   $ 927,375   210   0.09 %
Savings accounts 1,648,739   811   0.20 %   1,601,671   627   0.16 %   1,553,019   527   0.14 %
Money market accounts 1,419,578   792   0.22 %   1,442,685   666   0.19 %   1,534,551   689   0.18 %
Certificates of deposit 1,067,742   2,380   0.89 %   998,738   1,819   0.74 %   1,200,435   1,756   0.59 %
Total interest-bearing deposits 5,187,468   4,264   0.33 %   5,047,023   3,358   0.27 %   5,215,380   3,182   0.24 %
Non-interest-bearing deposits 3,324,104     %   3,282,686     %   3,158,727     %
Total deposits 8,511,572   4,264   0.20 %   8,329,709   3,358   0.16 %   8,374,107   3,182   0.15 %
Other interest-bearing liabilities:                      
FHLB advances 296,495   1,499   2.03 %   155,540   677   1.77 %   103,848   301   1.16 %
Other borrowings 105,013   49   0.19 %   101,111   70   0.28 %   116,513   83   0.29 %
Junior subordinated debentures 140,212   1,548   4.43 %   140,212   1,342   3.88 %   140,212   1,164   3.33 %
Total borrowings 541,720   3,096   2.29 %   396,863   2,089   2.13 %   360,573   1,548   1.72 %
Total funding liabilities 9,053,292   7,360   0.33 %   8,726,572   5,447   0.25 %   8,734,680   4,730   0.22 %
Other non-interest-bearing liabilities(2) 75,784         65,978         56,175      
Total liabilities 9,129,076         8,792,550         8,790,855      
Shareholders' equity 1,268,805         1,276,968         1,342,520      
Total liabilities and shareholders' equity $ 10,397,881         $ 10,069,518         $ 10,133,375      
Net interest income/rate spread   $ 105,063   4.37 %     $ 99,373   4.34 %     $ 99,706   4.31 %
Net interest margin     4.39 %       4.35 %       4.33 %
Additional Key Financial Ratios:                      
Return on average assets     1.25 %       1.16 %       1.01 %
Return on average equity     10.25 %       9.14 %       7.60 %
Average equity/average assets     12.20 %       12.68 %       13.25 %
Average interest-earning assets/average interest-bearing liabilities     167.45 %       170.17 %       165.66 %
Average interest-earning assets/average funding liabilities     105.97 %       106.16 %       105.75 %
Non-interest income/average assets     0.82 %       0.86 %       0.81 %
Non-interest expense/average assets     3.19 %       3.29 %       3.16 %
Efficiency ratio(4)     65.44 %       67.67 %       66.49 %
Adjusted efficiency ratio(5)     64.09 %       67.42 %       64.83 %
                             


(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 amortization of core deposit intangibles (CDI), REO gain (loss), and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.
     


               
ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
(rates / ratios annualized)              
               
ANALYSIS OF NET INTEREST SPREAD Six months ended
  June 30, 2018   June 30, 2017
  Average Balance Interest and Dividends Yield/Cost(3)   Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:              
Mortgage loans $ 6,114,482   $ 152,549   5.03 %   $ 6,045,712   $ 147,008   4.90 %
Commercial/agricultural loans 1,467,789   36,803   5.06 %   1,484,148   34,725   4.72 %
Consumer and other loans 141,016   4,523   6.47 %   138,380   4,350   6.34 %
Total loans(1) 7,723,287   193,875   5.06 %   7,668,240   186,083   4.89 %
Mortgage-backed securities 1,160,407   16,230   2.82 %   955,285   10,886   2.30 %
Other securities 468,480   6,420   2.76 %   462,894   6,229   2.71 %
Interest-bearing deposits with banks 58,164   442   1.53 %   43,183   232   1.08 %
FHLB stock 19,406   276   2.87 %   15,008   102   1.37 %
Total investment securities 1,706,457   23,368   2.76 %   1,476,370   17,449   2.38 %
Total interest-earning assets 9,429,744   217,243   4.65 %   9,144,610   203,532   4.49 %
Non-interest-earning assets 804,862         909,576      
Total assets $ 10,234,606         $ 10,054,186      
Deposits:              
Interest-bearing checking accounts $ 1,027,800   527   0.10 %   $ 912,154   410   0.09 %
Savings accounts 1,625,335   1,438   0.18 %   1,555,363   1,050   0.14 %
Money market accounts 1,431,068   1,458   0.21 %   1,528,545   1,340   0.18 %
Certificates of deposit 1,033,431   4,199   0.82 %   1,145,182   3,173   0.56 %
Total interest-bearing deposits 5,117,634   7,622   0.30 %   5,141,244   5,973   0.23 %
Non-interest-bearing deposits 3,303,509     %   3,153,652     %
Total deposits 8,421,143   7,622   0.18 %   8,294,896   5,973   0.15 %
Other interest-bearing liabilities:              
FHLB advances 226,407   2,177   1.94 %   116,988   574   0.99 %
Other borrowings 103,073   119   0.23 %   112,325   157   0.28 %
Junior subordinated debentures 140,212   2,889   4.16 %   140,212   2,268   3.26 %
Total borrowings 469,692   5,185   2.23 %   369,525   2,999   1.64 %
Total funding liabilities 8,890,835   12,807   0.29 %   8,664,421   8,972   0.21 %
Other non-interest-bearing liabilities(2) 70,908         57,325      
Total liabilities 8,961,743         8,721,746      
Shareholders' equity 1,272,863         1,332,440      
Total liabilities and shareholders' equity $ 10,234,606         $ 10,054,186      
Net interest income/rate spread   $ 204,436   4.36 %     $ 194,560   4.28 %
Net interest margin     4.37 %       4.29 %
Additional Key Financial Ratios:              
Return on average assets     1.21 %       0.99 %
Return on average equity     9.70 %       7.45 %
Average equity/average assets     12.44 %       13.25 %
Average interest-earning assets/average interest-bearing liabilities     168.77 %       165.94 %
Average interest-earning assets/average funding liabilities     106.06 %       105.54 %
Non-interest income/average assets     0.84 %       0.79 %
Non-interest expense/average assets     3.24 %       3.13 %
Efficiency ratio(4)     66.53 %       66.72 %
Adjusted efficiency ratio(5)     65.70 %       65.06 %
                   


(1)   Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
(2)   Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3)   Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4)   Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5)   Adjusted non-interest expense divided by adjusted revenue.  Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments.  Adjusted non-interest expense excludes acquisition related costs, amortization of CDI, real estate operations expense, and state/municipal business and use taxes.  These represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.
     


                   
ADDITIONAL FINANCIAL INFORMATION                  
(dollars in thousands)                  
                   
* Non-GAAP Financial Measures                  
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.
                   
REVENUE FROM CORE OPERATIONS Quarters Ended   Six months ended
  Jun 30, 2018   Mar 31, 2018   Jun 30, 2017   Jun 30, 2018   Jun 30, 2017
Net interest income before provision for loan losses $ 105,063     $ 99,373     $ 99,706     $ 204,436     $ 194,560  
Total non-interest income 21,217     21,362     20,396     42,579     39,443  
Total GAAP revenue 126,280     120,735     120,102     247,015     234,003  
Exclude net (gain) loss on sale of securities (44 )   (4 )   54     (48 )   41  
Exclude change in valuation of financial instruments carried at fair value (224 )   (3,308 )   650     (3,532 )   1,338  
Revenue from core operations (non-GAAP) $ 126,012     $ 117,423     $ 120,806     $ 243,435     $ 235,382  
                                       


EARNINGS FROM CORE OPERATIONS   Quarters Ended   Six months ended
    Jun 30, 2018   Mar 31, 2018   Jun 30, 2017   Jun 30, 2018   Jun 30, 2017
Net income (GAAP)   $ 32,424     $ 28,790     $ 25,454     $ 61,214     $ 49,247  
Exclude net (gain) loss on sale of securities   (44 )   (4 )   54     (48 )   41  
Exclude change in valuation of financial instruments carried at fair value   (224 )   (3,308 )   650     (3,532 )   1,338  
Exclude related tax expense (benefit)   64     795     (253 )   859     (496 )
Total earnings from core operations (non-GAAP)   $ 32,220     $ 26,273     $ 25,905     $ 58,493     $ 50,130  
                     
Diluted earnings per share (GAAP)   $ 1.00     $ 0.89     $ 0.77     $ 1.89     $ 1.49  
                                         
Diluted core earnings per share (non-GAAP)   $ 1.00     $ 0.81     $ 0.78     $ 1.80     $ 1.52  
                                         


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
                     
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Six months ended
    Jun 30, 2018   Mar 31, 2018   Jun 30, 2017   Jun 30, 2018   Jun 30, 2017
Non-interest expense (GAAP)   $ 82,637     $ 81,706     $ 79,857     $ 164,343     $ 156,137  
Exclude CDI amortization   (1,382 )   (1,382 )   (1,624 )   (2,764 )   (3,248 )
Exclude state/municipal tax expense   (816 )   (713 )   (279 )   (1,529 )   (1,078 )
Exclude REO gain (loss)   319     (439 )   363     (121 )   1,329  
Adjusted non-interest expense (non-GAAP)   $ 80,758     $ 79,172     $ 78,317     $ 159,929     $ 153,140  
                     
Net interest income before provision for loan losses (GAAP)   $ 105,063     $ 99,373     $ 99,706     $ 204,436     $ 194,560  
Non-interest income (GAAP)   21,217     21,362     20,396     42,579     39,443  
Total revenue   126,280     120,735     120,102     247,015     234,003  
Exclude net (gain) loss on sale of securities   (44 )   (4 )   54     (48 )   41  
Exclude net change in valuation of financial instruments carried at fair value   (224 )   (3,308 )   650     (3,532 )   1,338  
Adjusted revenue (non-GAAP)   $ 126,012     $ 117,423     $ 120,806     $ 243,435     $ 235,382  
                     
Efficiency ratio (GAAP)   65.44 %   67.67 %   66.49 %   66.53 %   66.72 %
Adjusted efficiency ratio (non-GAAP)   64.09 %   67.42 %   64.83 %   65.70 %   65.06 %
                               
                               


                 
TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS   Jun 30, 2018   Mar 31, 2018   Dec 31, 2017   Jun 30, 2017
Shareholders' equity (GAAP)   $ 1,253,010     $ 1,254,123     $ 1,272,626     $ 1,309,851  
Exclude goodwill and other intangible assets, net   262,517     263,910     265,314     271,396  
Tangible common shareholders' equity (non-GAAP)   $ 990,493     $ 990,213     $ 1,007,312     $ 1,038,455  
                 
Total assets (GAAP)   $ 10,379,194     $ 10,317,264     $ 9,763,209     $ 10,199,820  
Exclude goodwill and other intangible assets, net   262,517     263,910     265,314     271,396  
Total tangible assets (non-GAAP)   $ 10,116,677     $ 10,053,354     $ 9,497,895     $ 9,928,424  
Common shareholders' equity to total assets (GAAP)   12.07 %   12.16 %   13.03 %   12.84 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   9.79 %   9.85 %   10.61 %   10.46 %
                 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE                
Tangible common shareholders' equity   $ 990,493     $ 990,213     $ 1,007,312     $ 1,038,455  
Common shares outstanding at end of period   32,405,696     32,423,673     32,726,485     33,278,031  
Common shareholders' equity (book value) per share (GAAP)   $ 38.67     $ 38.68     $ 38.89     $ 39.36  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 30.57     $ 30.54     $ 30.78     $ 31.21  
                                 


CONTACT: MARK J. GRESCOVICH,  
  PRESIDENT & CEO  
  PETER J. CONNER, CFO  
  (509) 527-3636  
   

 

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