Market Overview

Banner Corporation Reports Net Income of $39.7 Million, or $1.14 Per Diluted Share, in Second Quarter 2019; Results Highlighted by 10% Year-Over-Year Revenue Growth and Improved Operating Efficiencies

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WALLA WALLA, Wash., July 24, 2019 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income increased 19% to $39.7 million, or $1.14 per diluted share, in the second quarter of 2019, compared to $33.3 million, or $0.95 per diluted share, in the preceding quarter and increased by 22% when compared to $32.4 million, or $1.00 per diluted share, in the second quarter of 2018.  Second quarter of 2019 results include $301,000 of acquisition-related expenses.  In the preceding quarter, Banner's results included a $676,000 write-down on a former administration building as well as $2.1 million of acquisition-related expenses.  In the second quarter of 2018 there were no acquisition-related expenses.  In the first six months of 2019, net income increased 19% to $73.0 million, or $2.09 per diluted share, compared to $61.2 million, or $1.89 per diluted share, in the first six months a year ago.

"Banner's second quarter financial results demonstrate the effectiveness of our strategic plan and the success of our super community bank model," stated Mark J. Grescovich, President and Chief Executive Officer.  "Our operating performance generated solid revenue growth with increases in both net interest income and non-interest income compared to both the preceding quarter and the same quarter last year.  The ongoing benefits of the Skagit Bank acquisition also contributed to profitability, as expenses declined through the realization of synergies from the transaction."

At June 30, 2019, Banner Corporation had $11.85 billion in assets, $8.65 billion in net loans and $9.29 billion in deposits.  Banner operates 176 branch offices, including branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.  The acquisition of Skagit Bancorp, Inc. and its wholly-owned subsidiary, Skagit Bank, (collectively "Skagit") on November 1, 2018, added $916 million in assets and, after consolidation, six banking locations along the I-5 corridor from Seattle to the Canadian border.

Second Quarter 2019 Highlights

  • Revenues increased 4% to $139.4 million during the second quarter of 2019, compared to $134.2 million in the preceding quarter and increased 10% compared to $126.3 million in the second quarter a year ago.
  • Net interest income, before the provision for loan losses, was $116.7 million, compared to $116.1 million in the preceding quarter and increased 11% from $105.1 million in the second quarter a year ago.
  • Net interest margin was 4.38% for the current quarter, compared to 4.37% in the preceding quarter and 4.39% in the second quarter a year ago.
  • Total cost of funds of 56 basis points was unchanged compared with the prior quarter.
  • Return on average assets was 1.36% in the current quarter compared to 1.15% in the preceding quarter and 1.25% in the second quarter a year ago.
  • Net loans receivable increased to $8.65 billion at June 30, 2019, compared to $8.60 billion at March 31, 2019 and increased 14% when compared to $7.59 billion at June 30, 2018.
  • Provision for loan losses was $2.0 million for the quarter, increasing the allowance for loan losses to $98.3 million, or 1.12% of total loans receivable, as of June 30, 2019.
  • Core deposits increased slightly to $8.22 billion compared to $8.21 billion at March 31, 2019 and increased 11% compared to a year ago.  Core deposits represented 88% of total deposits at June 30, 2019.
  • Quarterly dividends to shareholders for the current quarter were $0.41 per share.
  • Common shareholders' equity per share increased to $43.99 at June 30, 2019, an increase of 2% from $42.99 at the preceding quarter end and an increase of 14% from $38.67 a year ago.
  • Tangible common shareholders' equity per share* increased to $33.36 at June 30, 2019, an increase of 3% from $32.47 at the preceding quarter end and an increase of 9% from $30.57 a year ago.
  • Repurchased 600,000 shares of common stock at an average cost of $53.46 per share.
  • Non-performing assets remained low at $21.0 million, or 0.18% of total assets, at June 30, 2019, compared to $22.0 million, or 0.19% of total assets three months earlier, and $16.5 million, or 0.16% of total assets, at June 30, 2018.

*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 revenue from core operations (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition- related expenses, amortization of core deposit intangibles, real estate owned gain (loss) and state/municipal taxes from non-interest expense divided by revenues from core operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

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

Income Statement Review

Banner's net interest margin was 4.38% for the second quarter of 2019, a one basis-point increase compared to 4.37% in the preceding quarter and a one basis-point decrease compared to 4.39% in the second quarter a year ago.  Acquisition accounting adjustments added seven basis points to the net interest margin in both the current quarter and the preceding quarter compared to six basis points in the second quarter a year ago.  The total purchase discount for acquired loans was $22.6 million at June 30, 2019, compared to $24.2 million at March 31, 2019 and $18.1 million at June 30, 2018.  In the first six months of the year, Banner's net interest margin was 4.38% compared to 4.37% in the first six months of 2018.

Average interest-earning asset yields increased two basis points to 4.91% compared to 4.89% for the preceding quarter and increased 21 basis points compared to 4.70% in the second quarter a year ago.  Average loan yields increased two basis points to 5.33% compared to 5.31% in the preceding quarter and increased 18 basis points compared to 5.15% in the second quarter a year ago.  Loan discount accretion added nine basis points to loan yields in both the second quarter of 2019 and the preceding quarter, compared to eight basis points in the second quarter a year ago.  Deposit costs were 0.39% in the second quarter of 2019, a two basis-point increase compared to the preceding quarter and a 19 basis-point increase compared to the second quarter a year ago.  The total cost of funds was 0.56% during the second quarter of 2019, unchanged compared to the preceding quarter and a 23 basis-point increase compared to the second quarter a year ago, largely reflecting an increase in the cost of deposits and in FHLB advances.

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

Total non-interest income was $22.7 million in the second quarter of 2019, compared to $18.1 million in the first quarter of 2019 and $21.2 million in the second quarter a year ago.  Deposit fees and other service charges were $14.0 million in the second quarter of 2019, compared to $12.6 million in the preceding quarter and $12.0 million in the second quarter a year ago.  The increase in deposit fees and other service charges during the current quarter compared to the prior quarter was primarily due to seasonal increases in interchange fee income; the increase over the prior year period reflects an overall increase in deposit accounts including those acquired from the Skagit acquisition.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $5.9 million in the second quarter, compared to $3.4 million in the preceding quarter and $4.6 million in the second quarter of 2018.  The higher mortgage banking revenue reflected an increase in residential and multifamily mortgage held-for-sale loan production.  Home purchase activity accounted for 81% of one- to four-family mortgage loan originations in the second quarter of 2019, compared to 80% in the prior quarter and 81% in the second quarter of 2018.  In the first six months of 2019, total non-interest income was $40.8 million, compared to $42.6 million in the first six months of 2018.

Banner's second quarter 2019 results included a $114,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and a $28,000 net loss on the sale of securities.  In the preceding quarter, results included an $11,000 net gain for fair value adjustments and a $1,000 net gain on the sale of securities.  In the second quarter a year ago, results included a $224,000 net gain for fair value adjustments and a $44,000 net gain on the sale of securities.

Total revenues increased 4% to $139.4 million for the second quarter of 2019, compared to $134.2 million in the preceding quarter and increased 10% compared to $126.3 million in the second quarter a year ago.  Year-to-date, total revenues increased 11% to $273.6 million compared to $247.0 million for the same period one year earlier.  Revenues from core operations* (revenues excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) were $139.5 million in the second quarter of 2019, compared to $134.2 million in the preceding quarter and $126.0 million in the second quarter of 2018.  In the first six months of the year, revenues from core operations* were $273.7 million, compared to $243.4 million in the first six months of 2018.

Banner's total non-interest expense was $86.7 million in the second quarter of 2019, compared to $90.0 million in the preceding quarter and $82.6 million in the second quarter of 2018.  The decrease in non-interest expense during the current quarter reflects the first full quarter of synergies from the integration and consolidation of the Skagit systems and operations.  In addition, the decrease in acquisition-related expenses, which were $301,000 for the second quarter of 2019, compared to $2.1 million for the preceding quarter, contributed to the decrease in non-interest expense for the quarter.  There were no acquisition-related expenses for the year ago quarter. Higher loan originations and annual updates to our loan deferred origination cost models resulted in a $2.6 million increase in capitalized loan origination costs, offsetting  increases in salary and benefits driven by increased commissions on loan originations.  Year-to-date, total non-interest expense was $176.7 million, compared to $164.3 million in the same period a year earlier.  Banner's efficiency ratio improved to 62.22% for the current quarter, compared to 67.06% in the preceding quarter and 65.44% in the year ago quarter.  Banner's adjusted efficiency ratio* was 59.56% for the current quarter, compared to 63.32% in the preceding quarter and 64.09% in the year ago quarter.

For the second quarter of 2019, Banner recorded $11.0 million in state and federal income tax expense for an effective tax rate of 21.6%, reflecting in part the benefits from tax exempt income sources.  Banner's normal, expected statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased to $11.85 billion at June 30, 2019, compared to $11.74 billion at March 31, 2019 and $10.38 billion at June 30, 2018.  The total of securities and interest-bearing deposits held at other banks was $1.85 billion at June 30, 2019, compared to $1.89 billion at March 31, 2019 and $1.74 billion at June 30, 2018.  The average effective duration of Banner's securities portfolio was approximately 2.6 years at June 30, 2019, compared to 4.0 years at June 30, 2018.

Net loans receivable increased modestly to $8.65 billion at June 30, 2019, compared to $8.60 billion at March 31, 2019 and increased 14% when compared to $7.59 billion at June 30, 2018.  The year-over-year increase in net loans included $631.7 million of portfolio loans acquired in the Skagit acquisition during the fourth quarter of 2018.  Commercial real estate and multifamily real estate loans were $3.95 billion at June 30, 2019, unchanged from March 31, 2019, and increased 13% compared to $3.51 billion a year ago.  Commercial business loans increased 5% to $1.60 billion at June 30, 2019, compared to $1.52 billion at March 31, 2019, and increased 22% compared to $1.31 billion a year ago.  Agricultural business loans increased by 2% to $380.8 million at June 30, 2019, compared to $373.3 million three months earlier and increased by 13% compared to $336.7 million a year ago.  Total construction, land and land development loans decreased slightly to $1.08 billion at June 30, 2019, compared to $1.10 billion at March 31, 2019 and increased 10% compared to $980.4 million a year earlier.  Consumer loans increased 2% to $790.0 million at June 30, 2019, compared to $777.4 million at March 31, 2019 and increased 12% compared to $706.8 million a year ago.  One- to four-family loans declined modestly to $944.6 million at June 30, 2019, compared to $967.6 million at March 31, 2019 and increased 12% compared to $840.5 million a year ago.

Loans held for sale increased substantially to $170.7 million at June 30, 2019, compared to $45.9 million at March 31, 2019 and $78.8 million at June 30, 2018.  The volume of one- to four- family residential mortgage loans sold was $139.0 million in the current quarter, compared to $107.2 million in the preceding quarter and $124.1 million in the second quarter a year ago.  During the second quarter of 2019, Banner did not sell any multifamily loans, compared to $149.9 million in the preceding quarter and $135.7 million in the second quarter a year ago.

Total deposits decreased slightly to $9.29 billion at June 30, 2019, compared to $9.38 billion at March 31, 2019 and increased 9% when compared to $8.53 billion a year ago, as the addition of deposits from the Skagit acquisition was partially offset by a $101.0 million decline in the use of brokered certificates of deposit from March 31, 2019 and a $141.7 million decline from a year ago.  Non-interest-bearing account balances decreased slightly to $3.67 billion at June 30, 2019, compared to $3.68 billion at March 31, 2019 and increased 10% compared to $3.35 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased slightly from the prior quarter and increased 11% compared to a year ago.  Core deposits represented 88% of total deposits at June 30, 2019, the same as the prior period and 87% of total deposits a year earlier.  Certificates of deposit decreased 8% to $1.07 billion at June 30, 2019, compared to $1.16 billion at March 31, 2019 and decreased 7% compared to $1.15 billion a year earlier.  The decrease in certificates of deposit primarily reflects the decrease in brokered deposits to $138.4 million at June 30, 2019, compared to $239.4 million at March 31, 2019 and $280.1 million a year earlier.

At June 30, 2019, total common shareholders' equity was $1.52 billion, or 12.84% of assets, compared to $1.51 billion or 12.87% of assets at March 31, 2019 and $1.25 billion or 12.07% of assets a year ago.  At June 30, 2019, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.15 billion, or 10.05% of tangible assets*, compared to $1.14 billion, or 10.04% of tangible assets, at March 31, 2019 and $990.5 million, or 9.79% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $33.36 at June 30, 2019, compared to $30.57 per share a year ago.

Banner repurchased 600,000 shares of its common stock in the second quarter of 2019 at an average cost of $53.46 per share.  During the first quarter there were no repurchases of common stock.  Banner 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 Act regulatory standards.  At June 30, 2019, Banner's common equity Tier 1 capital ratio was 10.98%, its Tier 1 leverage capital to average assets ratio was 10.83%, and its total capital to risk-weighted assets ratio was 13.37%.

Credit Quality

The allowance for loan losses was $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% of non-performing loans compared to $97.3 million at March 31, 2019, or 1.12% of total loans receivable outstanding and 504% of non-performing loans, and $93.9 million at June 30, 2018, or 1.22% of total loans receivable outstanding and 613% of non-performing loans.  Net loan charge-offs totaled $1.1 million in the second quarter, compared to net loan charge-offs of $1.2 million in the preceding quarter and net loan charge-offs of $332,000 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 were $18.4 million at June 30, 2019, compared to $19.3 million at March 31, 2019 and $15.3 million a year ago.  Real estate owned and other repossessed assets were $2.6 million at June 30, 2019, compared to $2.7 million at March 31, 2019 and $1.2 million a year ago.  The increase compared to a year ago primarily reflects $2.6 million of real estate owned acquired in the Skagit acquisition.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans' contractual amounts, a portion of which reflects a discount for possible credit losses.  Credit discounts are included in the determination of fair value, and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.  At June 30, 2019, the total purchase discount for acquired loans was $22.6 million.

Banner's total non-performing assets were $21.0 million, or 0.18% of total assets, at June 30, 2019, compared to $22.0 million, or 0.19% of total assets, at March 31, 2019, and $16.5 million, or 0.16% of total assets, a year ago.  In addition to non-performing assets, there were $12.9 million purchased credit-impaired loans at June 30, 2019, compared to $13.3 million at March 31, 2019, and $18.1 million at June 30, 2018.

Conference Call

Banner will host a conference call on Thursday, July 25, 2019, 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 10132624, or at www.bannerbank.com.

About the Company

Banner Corporation is an $11.85 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans.  Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the "SEC"), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "may," "believe," "will," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "plans," "potential," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner's operating and stock price performance.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the Skagit acquisition might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for loan losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior and net interest margin; (6) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (12) the costs, effects and outcomes of litigation; (13) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; (16) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (17) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.


RESULTS OF OPERATIONS   Quarters Ended   Six months ended
(in thousands except shares and per share data)   Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
                     
INTEREST INCOME:                    
Loans receivable   $ 117,007     $ 115,455     $ 99,853     $ 232,462     $ 193,875  
Mortgage-backed securities   9,794     10,507     8,899     20,301     16,230  
Securities and cash equivalents   4,037     4,034     3,671     8,071     7,138  
    130,838     129,996     112,423     260,834     217,243  
INTEREST EXPENSE:                    
Deposits   9,023     8,643     4,264     17,666     7,622  
Federal Home Loan Bank advances   3,370     3,476     1,499     6,846     2,177  
Other borrowings   67     60     49     127     119  
Junior subordinated debentures   1,683     1,713     1,548     3,396     2,889  
    14,143     13,892     7,360     28,035     12,807  
Net interest income before provision for loan losses   116,695     116,104     105,063     232,799     204,436  
PROVISION FOR LOAN LOSSES   2,000     2,000     2,000     4,000     4,000  
Net interest income   114,695     114,104     103,063     228,799     200,436  
NON-INTEREST INCOME:                    
Deposit fees and other service charges   14,046     12,618     11,985     26,664     23,281  
Mortgage banking operations   5,936     3,415     4,643     9,351     9,507  
Bank-owned life insurance   1,123     1,276     933     2,399     1,785  
Miscellaneous   1,713     804     3,388     2,517     4,426  
    22,818     18,113     20,949     40,931     38,999  
Net (loss) gain on sale of securities   (28 )   1     44     (27 )   48  
Net change in valuation of financial instruments carried at fair value   (114 )   11     224     (103 )   3,532  
Total non-interest income   22,676     18,125     21,217     40,801     42,579  
NON-INTEREST EXPENSE:                    
Salary and employee benefits   55,629     54,640     51,494     110,269     101,561  
Less capitalized loan origination costs   (7,399 )   (4,849 )   (4,733 )   (12,248 )   (8,744 )
Occupancy and equipment   12,681     13,766     11,574     26,447     23,340  
Information / computer data services   5,273     5,326     4,564     10,599     8,945  
Payment and card processing services   4,041     3,984     3,731     8,025     7,431  
Professional and legal expenses   2,336     2,434     3,838     4,770     8,266  
Advertising and marketing   2,065     1,529     2,141     3,594     3,971  
Deposit insurance   1,418     1,418     1,021     2,836     2,362  
State/municipal business and use taxes   1,007     945     816     1,952     1,529  
Real estate operations   260     (123 )   (319 )   137     121  
Amortization of core deposit intangibles   2,053     2,052     1,382     4,105     2,764  
Miscellaneous   7,051     6,744     7,128     13,795     12,797  
    86,415     87,866     82,637     174,281     164,343  
Acquisition-related expenses   301     2,148         2,449      
Total non-interest expense   86,716     90,014     82,637     176,730     164,343  
Income before provision for income taxes   50,655     42,215     41,643     92,870     78,672  
PROVISION FOR INCOME TAXES   10,955     8,869     9,219     19,824     17,458  
NET INCOME   $ 39,700     $ 33,346     $ 32,424     $ 73,046     $ 61,214  
Earnings per share available to common shareholders:                    
Basic   $ 1.14     $ 0.95     $ 1.01     $ 2.09     $ 1.89  
Diluted   $ 1.14     $ 0.95     $ 1.00     $ 2.09     $ 1.89  
Cumulative dividends declared per common share   $ 0.41     $ 0.41     $ 0.85     $ 0.82     $ 1.20  
Weighted average common shares outstanding:                    
Basic   34,831,047     35,050,376     32,250,514     34,940,106     32,323,635  
Diluted   34,882,359     35,172,056     32,331,609     35,028,881     32,422,287  
Decrease in common shares outstanding   (579,103 )   (30,026 )   (17,977 )   (609,129 )   (320,789 )


FINANCIAL CONDITION                   Percentage Change
(in thousands except shares and per share data)   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Jun 30, 2018   Prior
Qtr
  Prior
Yr Qtr
                         
ASSETS                        
Cash and due from banks   $ 187,043     $ 218,458     $ 231,029     $ 195,652     (14.4 )%   (4.4 )%
Interest-bearing deposits   59,753     43,080     41,167     53,773     38.7 %   11.1 %
Total cash and cash equivalents   246,796     261,538     272,196     249,425     (5.6 )%   (1.1 )%
Securities - trading   25,741     25,838     25,896     25,640     (0.4 )%   0.4 %
Securities - available for sale   1,561,009     1,603,804     1,636,223     1,400,312     (2.7 )%   11.5 %
Securities - held to maturity   203,222     218,993     234,220     263,176     (7.2 )%   (22.8 )%
Total securities   1,789,972     1,848,635     1,896,339     1,689,128     (3.2 )%   6.0 %
Federal Home Loan Bank stock   34,583     27,063     31,955     19,916     27.8 %   73.6 %
Loans held for sale   170,744     45,865     171,031     78,833     272.3 %   116.6 %
Loans receivable   8,746,550     8,692,657     8,684,595     7,684,732     0.6 %   13.8 %
Allowance for loan losses   (98,254 )   (97,308 )   (96,485 )   (93,875 )   1.0 %   4.7 %
Net loans receivable   8,648,296     8,595,349     8,588,110     7,590,857     0.6 %   13.9 %
Accrued interest receivable   40,238     41,220     38,593     34,004     (2.4 )%   18.3 %
Real estate owned held for sale, net   2,513     2,611     2,611     473     (3.8 )%   431.3 %
Property and equipment, net   171,233     171,057     171,809     153,224     0.1 %   11.8 %
Goodwill   339,154     339,154     339,154     242,659     %   39.8 %
Other intangibles, net   28,595     30,647     32,924     19,858     (6.7 )%   44.0 %
Bank-owned life insurance   178,922     178,202     177,467     164,225     0.4 %   8.9 %
Other assets   196,328     198,944     149,128     136,592     (1.3 )%   43.7 %
Total assets   $ 11,847,374     $ 11,740,285     $ 11,871,317     $ 10,379,194     0.9 %   14.1 %
LIABILITIES                        
Deposits:                        
Non-interest-bearing   $ 3,671,995     $ 3,676,984     $ 3,657,817     $ 3,346,777     (0.1 )%   9.7 %
Interest-bearing transaction and savings accounts   4,546,202     4,535,969     4,498,966     4,032,283     0.2 %   12.7 %
Interest-bearing certificates   1,070,770     1,163,276     1,320,265     1,148,607     (8.0 )%   (6.8 )%
Total deposits   9,288,967     9,376,229     9,477,048     8,527,667     (0.9 )%   8.9 %
Advances from Federal Home Loan Bank   606,000     418,000     540,189     239,190     45.0 %   153.4 %
Customer repurchase agreements and other borrowings   118,370     121,719     118,995     112,458     (2.8 )%   5.3 %
Junior subordinated debentures at fair value   113,621     113,917     114,091     112,774     (0.3 )%   0.8 %
Accrued expenses and other liabilities   159,131     158,669     102,061     93,281     0.3 %   70.6 %
Deferred compensation   40,230     40,560     40,338     40,814     (0.8 )%   (1.4 )%
Total liabilities   10,326,319     10,229,094     10,392,722     9,126,184     1.0 %   13.2 %
SHAREHOLDERS' EQUITY                        
Common stock   1,306,888     1,338,386     1,337,436     1,173,656     (2.4 )%   11.4 %
Retained earnings   178,257     152,911     134,055     84,485     16.6 %   111.0 %
Other components of shareholders' equity   35,910     19,894     7,104     (5,131 )   80.5 %   nm  
Total shareholders' equity   1,521,055     1,511,191     1,478,595     1,253,010     0.7 %   21.4 %
Total liabilities and shareholders' equity   $ 11,847,374     $ 11,740,285     $ 11,871,317     $ 10,379,194     0.9 %   14.1 %
Common Shares Issued:                        
Shares outstanding at end of period   34,573,643     35,152,746     35,182,772     32,405,696          
Common shareholders' equity per share (1)   $ 43.99     $ 42.99     $ 42.03     $ 38.67          
Common shareholders' tangible equity per share (1) (2)   $ 33.36     $ 32.47     $ 31.45     $ 30.57          
Common shareholders' tangible equity to tangible assets (2)   10.05 %   10.04 %   9.62 %   9.79 %        
Consolidated Tier 1 leverage capital ratio   10.83 %   10.73 %   10.98 %   10.80 %        


(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,
2019
  Mar 31,
2019
  Dec 31,
2018
  Jun 30,
2018
  Prior
Qtr
  Prior
Yr Qtr
                         
Commercial real estate:                        
Owner occupied   $ 1,433,995     $ 1,442,724     $ 1,430,097     $ 1,256,730     (0.6 )%   14.1 %
Investment properties   2,116,306     2,124,049     2,131,059     1,920,790     (0.4 )%   10.2 %
Multifamily real estate   402,241     387,142     368,836     330,384     3.9 %   21.7 %
Commercial construction   172,931     181,888     172,410     166,089     (4.9 )%   4.1 %
Multifamily construction   189,160     183,203     184,630     147,576     3.3 %   28.2 %
One- to four-family construction   503,061     514,468     534,678     480,591     (2.2 )%   4.7 %
Land and land development:                        
Residential   187,180     187,660     188,508     163,335     (0.3 )%   14.6 %
Commercial   27,470     28,928     27,278     22,849     (5.0 )%   20.2 %
Commercial business   1,598,788     1,524,298     1,483,614     1,312,424     4.9 %   21.8 %
Agricultural business including secured by farmland   380,805     373,322     404,873     336,709     2.0 %   13.1 %
One- to four-family real estate   944,617     967,581     973,616     840,470     (2.4 )%   12.4 %
Consumer:                        
Consumer secured by one- to four-family real estate   575,658     564,872     568,979     536,007     1.9 %   7.4 %
Consumer-other   214,338     212,522     216,017     170,778     0.9 %   25.5 %
Total loans receivable   $ 8,746,550     $ 8,692,657     $ 8,684,595     $ 7,684,732     0.6 %   13.8 %
Restructured loans performing under their restructured terms   $ 6,594     $ 13,036     $ 13,422     $ 13,793          
Loans 30 - 89 days past due and on accrual (1)   $ 17,923     $ 28,972     $ 25,108     $ 8,040          
Total delinquent loans (including loans on non-accrual), net (2)   $ 34,749     $ 46,616     $ 38,721     $ 22,620          
Total delinquent loans / Total loans receivable   0.40 %   0.54 %   0.45 %   0.29 %        

 (1) Includes $21,000 of purchased credit-impaired loans at June 30, 2019 compared to $3,000 at December 31, 2018 and $6,000 at June 30, 2018.
 (2) Delinquent loans include $330,000 of delinquent purchased credit-impaired loans at June 30, 2019 compared to $519,000 at December 31, 2018 and $1.0 million at June 30, 2018.

LOANS BY GEOGRAPHIC LOCATION                       Percentage Change
    Jun 30, 2019   Mar 31,
2019
  Dec 31,
2018
  Jun 30,
2018
  Prior
Qtr
  Prior
Yr Qtr
    Amount   Percentage   Amount   Amount   Amount        
                             
Washington   $ 4,293,854     49.1 %   $ 4,329,759     $ 4,324,588     $ 3,550,945     (0.8 )%   20.9 %
Oregon   1,628,102     18.6 %   1,639,427     1,636,152     1,601,939     (0.7 )%   1.6 %
California   1,659,326     19.0 %   1,581,654     1,596,604     1,477,293     4.9 %   12.3 %
Idaho   548,189     6.3 %   524,705     521,026     500,201     4.5 %   9.6 %
Utah   62,944     0.7 %   59,940     57,318     76,414     5.0 %   (17.6 )%
Other   554,135     6.3 %   557,172     548,907     477,940     (0.5 )%   15.9 %
Total loans receivable   $ 8,746,550     100.0 %   $ 8,692,657     $ 8,684,595     $ 7,684,732     0.6 %   13.8 %

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

LOAN ORIGINATIONS Quarters Ended   Six Months Ended
  Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
Commercial real estate $ 81,361     $ 94,196     $ 155,781     $ 175,557     $ 221,506  
Multifamily real estate 21,651     7,617     6,090     29,267     6,825  
Construction and land 368,224     233,494     361,427     601,718     692,350  
Commercial business 241,134     125,912     195,909     367,046     328,896  
Agricultural business 20,702     32,059     41,480     52,761     68,054  
One-to four-family residential 26,210     31,789     26,416     57,999     44,351  
Consumer 119,970     63,774     114,289     183,743     184,822  
Total loan originations (excluding loans held for sale) $ 879,252     $ 588,841     $ 901,392     $ 1,468,091     $ 1,546,804  


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
      Quarters Ended   Six months ended
CHANGE IN THE   Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
ALLOWANCE FOR LOAN LOSSES                    
Balance, beginning of period   $ 97,308     $ 96,485     $ 92,207     $ 96,485     $ 89,028  
Provision for loan losses   2,000     2,000     2,000     4,000     4,000  
Recoveries of loans previously charged off:                    
Commercial real estate   149     21     216     170     1,568  
Construction and land   30     22     11     52     185  
One- to four-family real estate   230     43     356     273     646  
Commercial business   215     23     100     238     270  
Agricultural business, including secured by farmland   35         41     35     41  
Consumer   223     110     106     333     218  
    882     219     830     1,101     2,928  
Loans charged off:                    
Commercial real estate   (393 )   (431 )   (299 )   (824 )   (299 )
One- to four-family real estate                   (16 )
Commercial business   (802 )   (590 )   (375 )   (1,392 )   (894 )
Agricultural business, including secured by farmland   (162 )   (4 )   (329 )   (166 )   (336 )
Consumer   (579 )   (371 )   (159 )   (950 )   (536 )
    (1,936 )   (1,396 )   (1,162 )   (3,332 )   (2,081 )
Net (charge-offs) recoveries   (1,054 )   (1,177 )   (332 )   (2,231 )   847  
Balance, end of period   $ 98,254     $ 97,308     $ 93,875     $ 98,254     $ 93,875  
Net (charge-offs) recoveries / Average loans receivable   (0.012 )%   (0.013 )%   (0.004 )%   (0.025 )%   0.011 %


ALLOCATION OF                
ALLOWANCE FOR LOAN LOSSES   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Jun 30, 2018
Specific or allocated loss allowance:                
Commercial real estate   $ 26,730     $ 27,091     $ 27,132     $ 24,413  
Multifamily real estate   4,344     4,020     3,818     3,718  
Construction and land   23,554     23,713     24,442     27,034  
One- to four-family real estate   4,701     4,711     4,714     3,932  
Commercial business   19,557     18,662     19,438     19,141  
Agricultural business, including secured by farmland   3,691     3,596     3,778     3,162  
Consumer   8,452     7,980     7,972     5,725  
Total allocated   91,029     89,773     91,294     87,125  
Unallocated   7,225     7,535     5,191     6,750  
Total allowance for loan losses   $ 98,254     $ 97,308     $ 96,485     $ 93,875  
Allowance for loan losses / Total loans receivable   1.12 %   1.12 %   1.11 %   1.22 %
Allowance for loan losses / Non-performing loans   534 %   504 %   616 %   613 %




ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
  Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Jun 30, 2018
NON-PERFORMING ASSETS              
Loans on non-accrual status:              
Secured by real estate:              
Commercial $ 4,603     $ 5,734     $ 4,088     $ 4,341  
Construction and land 2,214     3,036     3,188     1,176  
One- to four-family 2,665     1,538     1,544     2,281  
Commercial business 2,983     3,614     2,936     2,673  
Agricultural business, including secured by farmland 1,359     2,507     1,751     1,712  
Consumer 3,230     2,181     1,241     1,176  
  17,054     18,610     14,748     13,359  
Loans more than 90 days delinquent, still on accrual:              
Secured by real estate:              
Construction and land 262             784  
One- to four-family 995     640     658     905  
Commercial business 1     1     1     1  
Consumer 97     42     247     253  
  1,355     683     906     1,943  
Total non-performing loans 18,409     19,293     15,654     15,302  
Real estate owned (REO) 2,513     2,611     2,611     473  
Other repossessed assets 112     50     592     733  
Total non-performing assets $ 21,034     $ 21,954     $ 18,857     $ 16,508  
Total non-performing assets to total assets 0.18 %   0.19 %   0.16 %   0.16 %
Purchased credit-impaired loans, net $ 12,945     $ 13,330     $ 14,413     $ 18,063  


  Quarters Ended   Six months ended
REAL ESTATE OWNED Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
Balance, beginning of period $ 2,611     $ 2,611     $ 328     $ 2,611     $ 360  
Additions from loan foreclosures 61         393     61     521  
Proceeds from dispositions of REO (150 )       (314 )   (150 )   (314 )
Gain on sale of REO (9 )       66     (9 )   66  
Valuation adjustments in the period                 (160 )
Balance, end of period $ 2,513     $ 2,611     $ 473     $ 2,513     $ 473  



ADDITIONAL FINANCIAL INFORMATION                        
(dollars in thousands)                        
                         
DEPOSIT COMPOSITION                   Percentage Change
    Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Jun 30, 2018   Prior Qtr   Prior Yr
Qtr
                         
Non-interest-bearing   $ 3,671,995     $ 3,676,984     $ 3,657,817     $ 3,346,777     (0.1 )%   9.7 %
Interest-bearing checking   1,187,035     1,174,169     1,191,016     1,012,519     1.1 %   17.2 %
Regular savings accounts   1,848,048     1,865,852     1,842,581     1,635,080     (1.0 )%   13.0 %
Money market accounts   1,511,119     1,495,948     1,465,369     1,384,684     1.0 %   9.1 %
Total interest-bearing transaction and savings accounts   4,546,202     4,535,969     4,498,966     4,032,283     0.2 %   12.7 %
Total core deposits   8,218,197     8,212,953     8,156,783     7,379,060     0.1 %   11.4 %
Interest-bearing certificates   1,070,770     1,163,276     1,320,265     1,148,607     (8.0 )%   (6.8 )%
Total deposits   $ 9,288,967     $ 9,376,229     $ 9,477,048     $ 8,527,667     (0.9 )%   8.9 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS                       Percentage Change
    Jun 30, 2019   Mar 31,
2019
  Dec 31,
2018
  Jun 30,
2018
  Prior Qtr   Prior Yr
Qtr
    Amount   Percentage   Amount   Amount   Amount        
Washington   $ 5,503,280     59.2 %   $ 5,604,567     $ 5,674,328     $ 4,735,357     (1.8 )%   16.2 %
Oregon   1,919,051     20.7 %   1,906,132     1,891,145     1,886,435     0.7 %   1.7 %
California   1,399,137     15.1 %   1,402,213     1,434,033     1,444,413     (0.2 )%   (3.1 )%
Idaho   467,499     5.0 %   463,317     477,542     461,462     0.9 %   1.3 %
Total deposits   $ 9,288,967     100.0 %   $ 9,376,229     $ 9,477,048     $ 8,527,667     (0.9 )%   8.9 %


INCLUDED IN TOTAL DEPOSITS   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Jun 30, 2018
Public non-interest-bearing accounts   $ 102,348     $ 92,122     $ 96,009     $ 86,040  
Public interest-bearing transaction & savings accounts   121,262     118,033     121,392     114,457  
Public interest-bearing certificates   28,656     29,572     30,089     24,390  
Total public deposits   $ 252,266     $ 239,727     $ 247,490     $ 224,887  
Total brokered deposits   $ 138,395     $ 239,444     $ 377,347     $ 280,055  


             


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, 2019   Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
Banner Corporation-consolidated:                        
  Total capital to risk-weighted assets   $ 1,327,875     13.37 %   $ 794,575     8.00 %   $ 993,218     10.00 %
  Tier 1 capital to risk-weighted assets   1,227,022     12.35 %   595,931     6.00 %   595,931     6.00 %
  Tier 1 leverage capital to average assets   1,227,022     10.83 %   453,256     4.00 %     n/a     n/a  
  Common equity tier 1 capital to risk-weighted assets   1,091,022     10.98 %   446,948     4.50 %     n/a     n/a  
Banner Bank:                        
  Total capital to risk-weighted assets   1,236,298     12.69 %   779,191     8.00 %   973,989     10.00 %
  Tier 1 capital to risk-weighted assets   1,137,866     11.68 %   584,393     6.00 %   779,191     8.00 %
  Tier 1 leverage capital to average assets   1,137,866     10.30 %   442,043     4.00 %   552,553     5.00 %
  Common equity tier 1 capital to risk-weighted assets   1,137,866     11.68 %   438,295     4.50 %   633,093     6.50 %
Islanders Bank:                        
  Total capital to risk-weighted assets   35,804     18.80 %   15,239     8.00 %   19,049     10.00 %
  Tier 1 capital to risk-weighted assets   33,422     17.54 %   11,430     6.00 %   15,239     8.00 %
  Tier 1 leverage capital to average assets   33,422     12.00 %   11,143     4.00 %   13,929     5.00 %
  Common equity tier 1 capital to risk-weighted assets   33,422     17.54 %   8,572     4.50 %   12,382     6.50 %



ADDITIONAL FINANCIAL INFORMATION                      
(dollars in thousands)                      
(rates / ratios annualized)                      
                       
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
  June 30, 2019   March 31, 2019   June 30, 2018
  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:                      
Held for sale loans $ 47,663   $ 567   4.77 %   $ 98,005   $ 1,121   4.64 %   $ 112,664   $ 1,295   4.61 %
Mortgage loans 6,800,802   89,682   5.29 %   6,833,933   88,602   5.26 %   6,050,560   76,908   5.10 %
Commercial/agricultural loans 1,769,603   23,924   5.42 %   1,703,503   22,812   5.43 %   1,479,148   19,381   5.26 %
Consumer and other loans 179,693   2,834   6.33 %   183,451   2,920   6.46 %   141,401   2,269   6.44 %
Total loans(1) 8,797,761   117,007   5.33 %   8,818,892   115,455   5.31 %   7,783,773   99,853   5.15 %
Mortgage-backed securities 1,354,048   9,794   2.90 %   1,392,118   10,507   3.06 %   1,261,809   8,899   2.83 %
Other securities 448,721   3,310   2.96 %   484,134   3,479   2.91 %   473,953   3,331   2.82 %
Interest-bearing deposits with banks 53,955   340   2.53 %   44,757   289   2.62 %   51,886   211   1.63 %
FHLB stock 30,902   387   5.02 %   31,761   266   3.40 %   22,231   129   2.33 %
Total investment securities 1,887,626   13,831   2.94 %   1,952,770   14,541   3.02 %   1,809,879   12,570   2.79 %
Total interest-earning assets 10,685,387   130,838   4.91 %   10,771,662   129,996   4.89 %   9,593,652   112,423   4.70 %
Non-interest-earning assets 1,048,811         1,031,591         804,229      
Total assets $ 11,734,198         $ 11,803,253         $ 10,397,881      
Deposits:                      
Interest-bearing checking accounts $ 1,177,534   564   0.19 %   $ 1,153,949   475   0.17 %   $ 1,051,409   281   0.11 %
Savings accounts 1,851,913   2,119   0.46 %   1,854,123   1,920   0.42 %   1,648,739   811   0.20 %
Money market accounts 1,497,717   2,656   0.71 %   1,490,326   2,251   0.61 %   1,419,578   792   0.22 %
Certificates of deposit 1,105,844   3,684   1.34 %   1,253,613   3,997   1.29 %   1,067,742   2,380   0.89 %
Total interest-bearing deposits 5,633,008   9,023   0.64 %   5,752,011   8,643   0.61 %   5,187,468   4,264   0.33 %
Non-interest-bearing deposits 3,652,096     %   3,605,922     %   3,324,104     %
Total deposits 9,285,104   9,023   0.39 %   9,357,933   8,643   0.37 %   8,511,572   4,264   0.20 %
Other interest-bearing liabilities:                      
FHLB advances 514,703   3,370   2.63 %   534,238   3,476   2.64 %   296,495   1,499   2.03 %
Other borrowings 122,455   67   0.22 %   118,008   60   0.21 %   105,013   49   0.19 %
Junior subordinated debentures 140,212   1,683   4.81 %   140,212   1,713   4.95 %   140,212   1,548   4.43 %
Total borrowings 777,370   5,120   2.64 %   792,458   5,249   2.69 %   541,720   3,096   2.29 %
Total funding liabilities 10,062,474   14,143   0.56 %   10,150,391   13,892   0.56 %   9,053,292   7,360   0.33 %
Other non-interest-bearing liabilities(2) 151,436         151,937         75,784      
Total liabilities 10,213,910         10,302,328         9,129,076      
Shareholders' equity 1,520,288         1,500,925         1,268,805      
Total liabilities and shareholders' equity $ 11,734,198         $ 11,803,253         $ 10,397,881      
Net interest income/rate spread   $ 116,695   4.35 %     $ 116,104   4.33 %     $ 105,063   4.37 %
Net interest margin     4.38 %       4.37 %       4.39 %
Additional Key Financial Ratios:                      
Return on average assets     1.36 %       1.15 %       1.25 %
Return on average equity     10.47 %       9.01 %       10.25 %
Average equity/average assets     12.96 %       12.72 %       12.20 %
Average interest-earning assets/average interest-bearing liabilities     166.69 %       164.59 %       167.45 %
Average interest-earning assets/average funding liabilities     106.19 %       106.12 %       105.97 %
Non-interest income/average assets     0.78 %       0.62 %       0.82 %
Non-interest expense/average assets     2.96 %       3.09 %       3.19 %
Efficiency ratio(4)     62.22 %       67.06 %       65.44 %
Adjusted efficiency ratio(5)     59.56 %       63.32 %       64.09 %


(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 expenses, 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 this press release.


ADDITIONAL FINANCIAL INFORMATION              
(dollars in thousands)              
(rates / ratios annualized)              
               
ANALYSIS OF NET INTEREST SPREAD Six months ended
  June 30, 2019   June 30, 2018
  Average Balance Interest and Dividends Yield/Cost(3)   Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:              
Held for sale loans $ 72,694   $ 1,688   4.68 %   $ 85,815   $ 1,976   4.64 %
Mortgage loans 6,817,276   178,284   5.27 %   6,028,667   150,573   5.04 %
Commercial/agricultural loans 1,736,735   46,736   5.43 %   1,467,789   36,803   5.06 %
Consumer and other loans 181,562   5,754   6.39 %   141,016   4,523   6.47 %
Total loans(1) 8,808,267   232,462   5.32 %   7,723,287   193,875   5.06 %
Mortgage-backed securities 1,372,978   20,301   2.98 %   1,160,407   16,230   2.82 %
Other securities 466,330   6,789   2.94 %   468,480   6,420   2.76 %
Interest-bearing deposits with banks 49,382   629   2.57 %   58,164   442   1.53 %
FHLB stock 31,329   653   4.20 %   19,406   276   2.87 %
Total investment securities 1,920,019   28,372   2.98 %   1,706,457   23,368   2.76 %
Total interest-earning assets 10,728,286   260,834   4.90 %   9,429,744   217,243   4.65 %
Non-interest-earning assets 1,040,248         804,862      
Total assets $ 11,768,534         $ 10,234,606      
Deposits:              
Interest-bearing checking accounts $ 1,165,807   1,039   0.18 %   $ 1,027,800   527   0.10 %
Savings accounts 1,853,012   4,039   0.44 %   1,625,335   1,438   0.18 %
Money market accounts 1,494,042   4,907   0.66 %   1,431,068   1,458   0.21 %
Certificates of deposit 1,179,320   7,681   1.31 %   1,033,431   4,199   0.82 %
Total interest-bearing deposits 5,692,181   17,666   0.63 %   5,117,634   7,622   0.30 %
Non-interest-bearing deposits 3,629,136     %   3,303,509     %
Total deposits 9,321,317   17,666   0.38 %   8,421,143   7,622   0.18 %
Other interest-bearing liabilities:              
FHLB advances 524,417   6,846   2.63 %   226,407   2,177   1.94 %
Other borrowings 120,243   127   0.21 %   103,073   119   0.23 %
Junior subordinated debentures 140,212   3,396   4.88 %   140,212   2,889   4.16 %
Total borrowings 784,872   10,369   2.66 %   469,692   5,185   2.23 %
Total funding liabilities 10,106,189   28,035   0.56 %   8,890,835   12,807   0.29 %
Other non-interest-bearing liabilities(2) 151,685         70,908      
Total liabilities 10,257,874         8,961,743      
Shareholders' equity 1,510,660         1,272,863      
Total liabilities and shareholders' equity $ 11,768,534         $ 10,234,606      
Net interest income/rate spread   $ 232,799   4.34 %     $ 204,436   4.36 %
Net interest margin     4.38 %       4.37 %
Additional Key Financial Ratios:              
Return on average assets     1.25 %       1.21 %
Return on average equity     9.75 %       9.70 %
Average equity/average assets     12.84 %       12.44 %
Average interest-earning assets/average interest-bearing liabilities     165.64 %       168.77 %
Average interest-earning assets/average funding liabilities     106.16 %       106.06 %
Non-interest income/average assets     0.70 %       0.84 %
Non-interest expense/average assets     3.03 %       3.24 %
Efficiency ratio(4)     64.59 %       66.53 %
Adjusted efficiency ratio(5)     61.41 %       65.70 %


(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 expenses, amortization of 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 this press release.


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.  However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP.  Where applicable, comparable earnings information using GAAP financial measures is also presented.  Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
                   
REVENUE FROM CORE OPERATIONS Quarters Ended   Six months ended
  Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
Net interest income before provision for loan losses $ 116,695     $ 116,104     $ 105,063     $ 232,799     $ 204,436  
Total non-interest income 22,676     18,125     21,217     40,801     42,579  
Total GAAP revenue 139,371     134,229     126,280     273,600     247,015  
Exclude net loss (gain) on sale of securities 28     (1 )   (44 )   27     (48 )
Exclude net change in valuation of financial instruments carried at fair value 114     (11 )   (224 )   103     (3,532 )
Revenue from core operations (non-GAAP) $ 139,513     $ 134,217     $ 126,012     $ 273,730     $ 243,435  


EARNINGS FROM CORE OPERATIONS   Quarters Ended   Six months ended
    Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
Net income (GAAP)   $ 39,700     $ 33,346     $ 32,424     $ 73,046     $ 61,214  
 Exclude net loss (gain) on sale of securities   28     (1 )   (44 )   27     (48 )
Exclude net change in valuation of financial instruments carried at fair value   114     (11 )   (224 )   103     (3,532 )
Exclude acquisition-related expenses   301     2,148         2,449      
Exclude related tax (benefit) expense   (106 )   (513 )   64     (619 )   859  
Total earnings from core operations (non-GAAP)   $ 40,037     $ 34,969     $ 32,220     $ 75,006     $ 58,493  
                     
Diluted earnings per share (GAAP)   $ 1.14     $ 0.95     $ 1.00     $ 2.09     $ 1.89  
Diluted core earnings per share (non-GAAP)   $ 1.15     $ 0.99     $ 1.00     $ 2.14     $ 1.80  


ADDITIONAL FINANCIAL INFORMATION                    
(dollars in thousands)                    
ADJUSTED EFFICIENCY RATIO   Quarters Ended   Six months ended
    Jun 30, 2019   Mar 31, 2019   Jun 30, 2018   Jun 30, 2019   Jun 30, 2018
Non-interest expense (GAAP)   $ 86,716     $ 90,014     $ 82,637     $ 176,730     $ 164,343  
Exclude acquisition-related expenses   (301 )   (2,148 )       (2,449 )    
Exclude CDI amortization   (2,053 )   (2,052 )   (1,382 )   (4,105 )   (2,764 )
Exclude state/municipal tax expense   (1,007 )   (945 )   (816 )   (1,952 )   (1,529 )
Exclude REO (loss) gain   (260 )   123     319     (137 )   (121 )
Adjusted non-interest expense (non-GAAP)   $ 83,095     $ 84,992     $ 80,758     $ 168,087     $ 159,929  
                     
Net interest income before provision for loan losses (GAAP)   $ 116,695     $ 116,104     $ 105,063     $ 232,799     $ 204,436  
Non-interest income (GAAP)   22,676     18,125     21,217     40,801     42,579  
Total revenue   139,371     134,229     126,280     273,600     247,015  
Exclude net loss (gain) on sale of securities   28     (1 )   (44 )   27     (48 )
Exclude net change in valuation of financial instruments carried at fair value   114     (11 )   (224 )   103     (3,532 )
Revenue from core operations (non-GAAP)   $ 139,513     $ 134,217     $ 126,012     $ 273,730     $ 243,435  
                     
Efficiency ratio (GAAP)   62.22 %   67.06 %   65.44 %   64.59 %   66.53 %
Adjusted efficiency ratio (non-GAAP)   59.56 %   63.32 %   64.09 %   61.41 %   65.70 %


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Jun 30, 2018
Shareholders' equity (GAAP)   $ 1,521,055     $ 1,511,191     $ 1,478,595     $ 1,253,010  
Exclude goodwill and other intangible assets, net   367,749     369,801     372,078     262,517  
Tangible common shareholders' equity (non-GAAP)   $ 1,153,306     $ 1,141,390     $ 1,106,517     $ 990,493  
                 
Total assets (GAAP)   $ 11,847,374     $ 11,740,285     $ 11,871,317     $ 10,379,194  
Exclude goodwill and other intangible assets, net   367,749     369,801     372,078     262,517  
Total tangible assets (non-GAAP)   $ 11,479,625     $ 11,370,484     $ 11,499,239     $ 10,116,677  
Common shareholders' equity to total assets (GAAP)   12.84 %   12.87 %   12.46 %   12.07 %
Tangible common shareholders' equity to tangible assets (non-GAAP)   10.05 %   10.04 %   9.62 %   9.79 %
                 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE                
Tangible common shareholders' equity (non-GAAP)   $ 1,153,306     $ 1,141,390     $ 1,106,517     $ 990,493  
Common shares outstanding at end of period   34,573,643     35,152,746     35,182,772     32,405,696  
Common shareholders' equity (book value) per share (GAAP)   $ 43.99     $ 42.99     $ 42.03     $ 38.67  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)   $ 33.36     $ 32.47     $ 31.45     $ 30.57  

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

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