Press Release

Banner Corporation Reports Third Quarter Net Income of $37.8 Million, or $1.17 Per Diluted Share; Results Highlighted by Strong Loan and Core Deposit Growth, Net Interest Margin Expansion and Improved Operating Efficiency

Company Release - 10/24/2018 4:00 PM ET

WALLA WALLA, Wash., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that continued margin expansion, coupled with strong loan and core deposit growth, along with improved operating efficiency contributed to solid third quarter financial results.  Net income in the third quarter of 2018 increased 16% to $37.8 million, or $1.17 per diluted share, compared to $32.4 million, or $1.00 per diluted share, in the preceding quarter and increased 51% when compared to $25.1 million, or $0.76 per diluted share, in the third quarter a year ago when federal income tax rates were substantially higher.  Third quarter results include $1.0 million of acquisition-related expense, compared to no acquisition expenses in the preceding or year ago quarter.

In the first nine months of 2018, net income increased 33% to $99.0 million, or $3.05 per diluted share, compared to $74.3 million, or $2.25 per diluted share, in the first nine months of 2017.

“Our third quarter 2018 performance clearly demonstrates that execution of our strategic plan is effective and continues to build shareholder value.  Our focus on growing new client relationships adds to our core funding position and promotes client loyalty through our responsive service model,” stated Mark J. Grescovich, President and Chief Executive Officer.  "In addition, we recently announced our agreement to acquire Skagit Bancorp, Inc., the holding company for Skagit Bank.  This transaction will expand Banner’s presence and density in the attractive North Sound markets of the Pacific Northwest and will represent a complementary fit, both strategically and culturally, with Banner’s business model.  We expect the combination of Banner and Skagit to enhance our already strong core deposit base, provide the opportunity to create operational efficiencies, and enhance the value of the combined company while offering Skagit Bank customers a broader product offering, increased lending limits and an expanded branch delivery system that stretches throughout the four states of Washington, Oregon, Idaho and California.”

At September 30, 2018, Banner Corporation had $10.51 billion in assets, $7.73 billion in net loans and $8.69 billion in deposits.  Banner operates 171 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2018 Highlights

  • Net income increased 16% to $37.8 million, or $1.17 per diluted share, compared to $32.4 million, or $1.00 per diluted share, in the preceding quarter and increased 51% compared to $25.1 million, or $0.76 per diluted share, in the third quarter a year ago.
  • Net interest income, before the provision for loan losses, increased 4% to $109.1 million, compared to $105.1 million in the preceding quarter and increased 9% from $100.2 million in the third quarter a year ago.
  • Net interest margin was 4.48% for the current quarter, compared to 4.39% in the preceding quarter and 4.22% in the third quarter a year ago.
  • Revenues were $129.5 million during the quarter ended September 30, 2018, $126.3 million during the preceding quarter and $118.3 million during the third quarter a year ago.
  • Return on average assets was 1.43% in the current quarter, compared to 1.25% in the preceding quarter and 0.97% in the third quarter a year ago.
  • Return on average equity was 11.78% in the current quarter, compared to 10.25% in the preceding quarter and 7.49% in the third quarter a year ago.
  • Provision for loan losses remained steady at $2.0 million, increasing the allowance for loan losses to $95.3 million or 1.22% of total loans compared to an allowance for loan losses of $89.1 million or 1.15% of total loans as of September 30, 2017.
  • Loans receivable increased 2% to $7.82 billion at September 30, 2018 compared to $7.68 billion at June 30, 2018.
  • Core deposits increased 2% compared to June 30, 2018 and represented 86% of total deposits at September 30, 2018.
  • Quarterly dividends to shareholders for the current quarter were $0.38 per share, an increase of 9% over the regular dividend of $0.35 per share in the second quarter 2018.
  • Tangible common shareholders' equity per share* was $31.20 at September 30, 2018, compared to $30.57 at the preceding quarter end and $31.79 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 9.86% at September 30, 2018, compared to 9.79% at the preceding quarter end and 10.39% at the end of the third quarter a year ago.
  • Non-performing assets were $16.7 million, or 0.16% of total assets, at September 30, 2018, and were $31.7 million, or 0.30% of total assets at September 30, 2017.

*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 acquisition-related costs, fair value adjustments and gains and losses on the sale of securities) and the 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 July 25, 2018, Banner and Skagit Bancorp, Inc. (“Skagit”), the holding company for Skagit Bank, a Washington state-chartered commercial bank, entered into a definitive merger agreement pursuant to which Banner will acquire Skagit in an all-stock transaction, subject to the terms and conditions set forth therein.  Under the merger agreement, Skagit will merge with and into Banner, and immediately thereafter Skagit Bank will merge with and into Banner Bank.  The transaction is expected to close on or about November 1, 2018, subject to customary closing conditions.

Skagit Bank is a 60-year-old community bank based in the North Sound region of the Pacific Northwest focused on developing and serving long term consumer and business clients.  At September 30, 2018, Skagit Bank had assets of $919 million, a diverse and high-quality loan portfolio of $604 million, and a low-cost deposit base of $819 million with 11 retail branches along the I-5 corridor from Seattle to the Canadian border. Banner expects the transaction to be immediately accretive to earnings per share, excluding one-time transaction expenses.  The combined company will have approximately $11.4 billion in assets.

On October 2, 2018, Banner announced that it had received all regulatory approvals required to consummate the proposed transaction, including the written approval of the Federal Deposit Insurance Corporation and the Washington Department of Financial Institutions, and written confirmation from the Board of Governors of the Federal Reserve System that no application was required to be filed with that agency.  On October 15, 2018, the shareholders of Skagit approved the definitive merger agreement.

Income Statement Review

“The rising interest rate environment contributed to higher yields on loans and improved our net interest margin again this quarter,” said Grescovich.  Banner's net interest margin was 4.48% for the third quarter of 2018, a nine basis point improvement compared to 4.39% in the preceding quarter and a 26 basis point improvement compared to 4.22% in the third quarter a year ago.  Acquisition accounting adjustments added 12 basis points to the net interest margin in the current quarter compared to six basis points in the preceding quarter and ten basis points in the third quarter a year ago.  The total purchase discount for acquired loans was $15.4 million at September 30, 2018, a decrease from $18.1 million at June 30, 2018 and a decrease compared to $23.4 million at September 30, 2017.  In the first nine months of the year, Banner’s net interest margin expanded 14 basis points to 4.41% compared to 4.27% in the first nine months a year ago.

Average interest-earning asset yields increased 13 basis points to 4.83% compared to 4.70% for the preceding quarter and increased 40 basis points compared to 4.43% in the third quarter a year ago.  Average loan yields increased 16 basis points to 5.31% compared to 5.15% in the preceding quarter and increased 43 basis points compared to 4.88% in the third quarter a year ago.  Loan discount accretion added 15 basis points to loan yields in the third quarter of 2018, compared to eight basis points in the preceding quarter and 12 basis points in the third quarter a year ago.  Deposit costs were 0.25% in the third quarter of 2018, a five basis point increase compared to the preceding quarter and a ten basis point increase compared to the third quarter a year ago.  The total cost of funds was 0.37% during the third quarter of 2018, a four basis point increase compared to the preceding quarter and a 14 basis point increase compared to the third quarter a year ago largely reflecting increased use of brokered deposits and the impacts of the rising rate environment.

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 third quarter, the same as in both the preceding and year ago quarters as credit quality metrics remained strong.

Deposit fees and other service charges were $12.3 million in the third quarter, compared to $12.0 million in the preceding quarter and $11.1 million in the third quarter a year ago.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $5.8 million in the third quarter compared to $4.6 million in the preceding quarter and $4.5 million in the third quarter of 2017.  Home purchase activity accounted for 78% of third quarter 2018 one- to four-family mortgage loan originations compared to 81% in the prior quarter and 77% in the third quarter of 2017.  Death benefits accounted for an $759,000 increase in Bank owned life insurance income during the quarter.

Banner’s third quarter 2018 results included a $45,000 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.  In the preceding quarter, results included a $224,000 net gain for fair value adjustments and a $44,000 net gain on the sale of securities.  In the third quarter a year ago, results included a $493,000 net loss for fair value adjustments and a $270,000 net gain on the sale of securities.  Following the adoption of new accounting guidance, beginning in the first quarter of 2018, 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 3% to $129.5 million for the third quarter of 2018, compared to $126.3 million in the preceding quarter and increased 9% compared to $118.3 million in the third quarter a year ago.  In the first nine months of 2018, total revenues increased 7% to $376.5 million, compared to $352.3 million in the first nine 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 $129.4 million in the third quarter of 2018, compared to $126.0 million in the preceding quarter, and $118.5 million in the third quarter of 2017.  In the first nine months of 2018, revenues from core operations* increased to $372.9 million from $353.9 million in the first nine 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 $20.4 million in the third quarter of 2018, compared to $21.2 million in the second quarter of 2018 and $18.1 million in the third quarter a year ago.  In the first nine months of 2018, total non-interest income was $63.0 million, compared to $57.5 million in the same period a year ago.

Banner’s total non-interest expense was $81.6 million in the third quarter of 2018, compared to $82.6 million in the preceding quarter and $80.3 million in the third quarter of 2017.  Acquisition-related expenses were $1.0 million for the third quarter, compared to no acquisition expenses in the preceding or year ago quarters.  Other non-interest expense items of significance for the third quarter of 2018 included $425,000 in fixed asset write-offs from consolidating six branches in July.  Banner’s adjusted efficiency ratio* improved to 60.21% for the current quarter, compared to 64.09% in the prior quarter and 65.62% in the year ago quarter.

For the third quarter of 2018, Banner recorded $8.1 million in state and federal income tax expense for an effective tax rate of 17.6%, reflecting the new lower federal corporate income tax rate beginning in 2018, as well as the benefits from tax exempt income sources and a $1.2 million credit to tax expense for its affordable housing lending activity.  Our 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.  For the year ago quarter, Banner recorded $10.9 million in state and federal income tax expense for an effective tax rate of 30.3%.

Balance Sheet Review

Banner’s total assets were $10.51 billion at September 30, 2018, compared to $10.38 billion at June 30, 2018, and $10.44 billion at September 30, 2017.  The total of securities and interest-bearing deposits held at other banks was $1.76 billion at September 30, 2018, compared to $1.74 billion at June 30, 2018, $1.26 billion at December 31, 2017 and $1.68 billion at September 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 in order to postpone the adverse impact of the Durbin Amendment.  The average effective duration of Banner's securities portfolio was approximately 4.2 years at September 30, 2018, compared to 3.6 years at September 30, 2017.

Net loans receivable increased 2% to $7.73 billion at September 30, 2018, compared to $7.59 billion at June 30, 2018 and increased modestly when compared to $7.69 billion at September 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 $3.52 billion at September 30, 2018, compared to $3.51 billion at June 30, 2018, but decreased compared to $3.67 billion a year ago, reflecting significant payoffs of both owner occupied and investment commercial real estate loans.  Commercial business loans increased 4% to $1.36 billion at September 30, 2018, compared to $1.31 billion three months earlier and increased 4% compared to $1.31 billion a year ago.  Reflecting normal seasonal trends, agricultural business loans increased by 7% to $360.0 million at September 30, 2018, compared to $336.7 million three months earlier and increased by 6% compared to $339.9 million a year ago.  Total construction, land and land development loans increased 4% to $1.02 billion at September 30, 2018, compared to $980.4 million at June 30, 2018, and increased 16% compared to $878.4 million a year earlier.  Consumer loans increased modestly to $710.5 million at September 30, 2018, compared to $706.8 million at June 30, 2018, and increased compared to $701.2 million a year ago.  One- to four-family loans increased modestly to $849.9 million compared to $840.5 million at June 30, 2018, but decreased compared to $869.6 million a year ago.

Loans held for sale decreased 8% to $72.9 million at September 30, 2018, compared to $78.8 million at June 30, 2018, but increased modestly compared to $71.9 million at September 30, 2017.  The volume of one- to four- family residential mortgage loans sold remained relatively constant at $134.1 million in the current quarter compared to $124.1 million in the preceding quarter and was $141.0 million in the third quarter a year ago.  During the third quarter of 2018, Banner sold $94.0 million in multifamily loans, compared to $135.7 million in the preceding quarter.  Loans held for sale at September 30, 2018 included $39.2 million of multifamily loans and $33.6 million of one- to four-family loans.

Total deposits were $8.69 billion at September 30, 2018, compared to $8.53 billion at June 30, 2018, and $8.54 billion a year ago, as strong core deposit growth over the last year, coupled with the addition of brokered certificates of deposits, was partially offset by continuing declines in retail, or non-brokered, certificates of deposit.  Compared to a year earlier, total deposits at September 30, 2018 were negatively impacted by the sale of $20.4 million of Poulsbo Branch deposits during the second quarter of 2018, as well as the sale of the Utah branches during the fourth quarter of 2017 which included $160.3 million of deposits.  Non-interest-bearing account balances increased 4% to $3.47 billion at September 30, 2018, compared to $3.35 billion at June 30, 2018, and increased 3% compared to $3.38 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 2% from the prior quarter and increased modestly compared to September 30, 2017, despite the sale of the Utah branches.  Core deposits represented 86% of total deposits at September 30, 2018, compared to 87% of total deposits at June 30, 2018, and 87% of total deposits a year earlier.  Certificates of deposit were $1.18 billion at September 30, 2018, compared to $1.15 billion at June 30, 2018, and $1.10 billion a year earlier.  Brokered deposits increased to $325.2 million at September 30, 2018, compared to $280.1 million at June 30, 2018, and were $171.7 million a year earlier.

At September 30, 2018, total common shareholders' equity was $1.27 billion, or $39.26 per share, compared to $1.25 billion at June 30, 2018, and $1.33 billion a year ago.  At September 30, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.01 billion, or 9.86% of tangible assets*, compared to $990.5 million, or 9.79% of tangible assets, at June 30, 2018 and $1.06 billion, or 10.39% of tangible assets, a year ago.  Banner's tangible book value per share* was $31.20 at September 30, 2018, compared to $31.79 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 or third quarters 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 September 30, 2018, Banner Corporation's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 11.04%, and its total capital to risk-weighted assets ratio was 13.76%.

Credit Quality

The allowance for loan losses was $95.3 million at September 30, 2018, or 1.22% of total loans outstanding and 603% of non-performing loans compared to $93.9 million at June 30, 2018, or 1.22% of total loans outstanding and 613% of non-performing loans, and $89.1 million at September 30, 2017, or 1.15% of total loans outstanding and 296% of non-performing loans.  Net loan charge-offs totaled $612,000 in the third quarter compared to $332,000 in the preceding quarter and $1.5 million in the third 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 $15.8 million at September 30, 2018, compared to $15.3 million at June 30, 2018 and decreased compared to $30.1 million a year ago.  Real estate owned and other repossessed assets were $937,000 at September 30, 2018, compared to $1.2 million at June 30, 2018 and $1.6 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.  At September 30, 2018, the total purchase discount for acquired loans was $15.4 million.

Banner's non-performing assets were $16.7 million, or 0.16% of total assets, at September 30, 2018, compared to $16.5 million, or 0.16% of total assets, at June 30, 2018 and $31.7 million, or 0.30% of total assets, a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $12.9 million at September 30, 2018, compared to $18.1 million at June 30, 2018 and $23.2 million at September 30, 2017.

Conference Call

Banner will host a conference call on Thursday, October 25, 2018, at 8:00 a.m. PDT, to discuss its third quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10124315, or at www.bannerbank.com.

About the Company

Banner Corporation is a $10.51 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 proposed merger of Banner and Skagit 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 remaining closing conditions to the merger may be delayed or may not be obtained, or the merger agreement may be terminated; (3) business disruption may occur following or in connection with the proposed merger of Banner and Skagit; (4) Banner's or Skagit's businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers,  other business partners or governmental entities; (5) the possibility that the proposed merger is more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of managements' attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise; (6) 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; (7) 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; (8) competitive pressures among depository institutions; (9) interest rate movements and their impact on customer behavior and net interest margin; (10) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (11) fluctuations in real estate values; (12) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (13) the ability to access cost-effective funding; (14) changes in financial markets; (15) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (16) the costs, effects and outcomes of litigation; (17) 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; (18) changes in accounting principles, policies or guidelines; (19) future acquisitions by Banner of other depository institutions or lines of business; (20) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (21) 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 OPERATIONSQuarters Ended Nine months ended
(in thousands except shares and per share data)Sep 30, 2018 Jun 30, 2018 Sep 30, 2017 Sep 30, 2018 Sep 30, 2017
          
INTEREST INCOME:         
Loans receivable$104,868  $99,853  $95,221  $298,743  $281,304 
Mortgage-backed securities8,915  8,899  6,644  25,145  17,529 
Securities and cash equivalents3,865  3,671  3,413  11,003  9,976 
 117,648  112,423  105,278  334,891  308,809 
INTEREST EXPENSE:         
Deposits5,517  4,264  3,189  13,139  9,162 
Federal Home Loan Bank advances1,388  1,499  569  3,564  1,142 
Other borrowings60  49  84  179  241 
Junior subordinated debentures1,605  1,548  1,226  4,495  3,494 
 8,570  7,360  5,068  21,377  14,039 
Net interest income before provision for loan losses109,078  105,063  100,210  313,514  294,770 
PROVISION FOR LOAN LOSSES2,000  2,000  2,000  6,000  6,000 
Net interest income107,078  103,063  98,210  307,514  288,770 
NON-INTEREST INCOME:         
Deposit fees and other service charges12,255  11,985  11,058  35,535  32,611 
Mortgage banking operations5,816  4,643  4,498  15,324  15,854 
Bank owned life insurance1,726  933  1,043  3,511  3,599 
Miscellaneous569  3,388  1,705  4,995  7,062 
 20,366  20,949  18,304  59,365  59,126 
Net gain on sale of securities  44  270  48  230 
Net change in valuation of financial instruments carried at fair value45  224  (493) 3,577  (1,831)
Total non-interest income20,411  21,217  18,081  62,990  57,525 
NON-INTEREST EXPENSE:         
Salary and employee benefits48,930  51,494  48,931  150,491  144,014 
Less capitalized loan origination costs(4,318) (4,733) (4,331) (13,062) (13,245)
Occupancy and equipment12,385  11,574  11,737  35,725  35,778 
Information / computer data services4,766  4,564  4,420  13,711  12,513 
Payment and card processing services3,748  3,731  3,581  11,179  10,523 
Professional services3,010  3,838  3,349  11,276  12,233 
Advertising and marketing1,786  2,141  2,130  5,758  5,225 
Deposit insurance991  1,021  1,101  3,353  3,438 
State/municipal business and use taxes902  816  780  2,430  1,857 
Real estate operations433  (319) 240  553  (1,089)
Amortization of core deposit intangibles1,348  1,382  1,542  4,112  4,790 
Miscellaneous6,646  7,128  6,851  19,444  20,432 
 80,627  82,637  80,331  244,970  236,469 
Acquisition related expenses1,005      1,005   
Total non-interest expense81,632  82,637  80,331  245,975  236,469 
Income before provision for income taxes45,857  41,643  35,960  124,529  109,826 
PROVISION FOR INCOME TAXES8,084  9,219  10,883  25,542  35,502 
NET INCOME$37,773  $32,424  $25,077  $98,987  $74,324 
Earnings per share available to common shareholders:         
Basic$1.17  $1.01  $0.76  $3.06  $2.25 
Diluted$1.17  $1.00  $0.76  $3.05  $2.25 
Cumulative dividends declared per common share$0.38  $0.85  $0.25  $1.58  $1.75 
Weighted average common shares outstanding:         
Basic32,256,789  32,250,514  32,982,532  32,300,688  32,966,214 
Diluted32,376,623  32,331,609  33,079,099  32,406,414  33,061,172 
(Decrease) increase in common shares outstanding(2,939) (17,977) (23,247) (323,728) 61,397 
               
               
               


FINANCIAL CONDITION        Percentage Change
(in thousands except shares and per share data)Sep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017 Prior Qtr Prior Yr Qtr
            
ASSETS           
Cash and due from banks$184,417  $195,652  $199,624  $192,278  (5.7)% (4.1)%
Interest-bearing deposits64,244  53,773  61,576  49,488  19.5 % 29.8 %
Total cash and cash equivalents248,661  249,425  261,200  241,766  (0.3)% 2.9 %
Securities - trading25,764  25,640  22,318  23,466  0.5 % 9.8 %
Securities - available for sale1,412,273  1,400,312  919,485  1,339,057  0.9 % 5.5 %
Securities - held to maturity258,699  263,176  260,271  264,752  (1.7)% (2.3)%
Total securities1,696,736  1,689,128  1,202,074  1,627,275  0.5 % 4.3 %
Federal Home Loan Bank stock19,196  19,916  10,334  20,854  (3.6)% (8.0)%
Loans held for sale72,850  78,833  40,725  71,905  (7.6)% 1.3 %
Loans receivable7,822,519  7,684,732  7,598,884  7,774,449  1.8 % 0.6 %
Allowance for loan losses(95,263) (93,875) (89,028) (89,100) 1.5 % 6.9 %
Net loans receivable7,727,256  7,590,857  7,509,856  7,685,349  1.8 % 0.5 %
Accrued interest receivable37,676  34,004  31,259  33,837  10.8 % 11.3 %
Real estate owned held for sale, net364  473  360  1,496  (23.0)% (75.7)%
Property and equipment, net151,212  153,224  154,815  159,893  (1.3)% (5.4)%
Goodwill242,659  242,659  242,659  244,583   % (0.8)%
Other intangibles, net18,499  19,858  22,655  25,219  (6.8)% (26.6)%
Bank-owned life insurance163,265  164,225  162,668  161,648  (0.6)% 1.0 %
Other assets135,929  136,592  124,604  169,261  (0.5)% (19.7)%
Total assets$10,514,303  $10,379,194  $9,763,209  $10,443,086  1.3 % 0.7 %
LIABILITIES           
Deposits:           
Non-interest-bearing$3,469,294  $3,346,777  $3,265,544  $3,379,841  3.7 % 2.6 %
Interest-bearing transaction and savings accounts4,035,856  4,032,283  3,950,950  4,058,435  0.1 % (0.6)%
Interest-bearing certificates1,180,674  1,148,607  966,937  1,100,574  2.8 % 7.3 %
Total deposits8,685,824  8,527,667  8,183,431  8,538,850  1.9 % 1.7 %
Advances from Federal Home Loan Bank at fair value221,184  239,190  202  263,349  (7.5)% (16.0)%
Customer repurchase agreements and other borrowings98,979  112,458  95,860  103,713  (12.0)% (4.6)%
Junior subordinated debentures at fair value113,110  112,774  98,707  97,280  0.3 % 16.3 %
Accrued expenses and other liabilities82,530  93,281  71,344  72,604  (11.5)% 13.7 %
Deferred compensation40,478  40,814  41,039  40,279  (0.8)% 0.5 %
Total liabilities9,242,105  9,126,184  8,490,583  9,116,075  1.3 % 1.4 %
SHAREHOLDERS' EQUITY           
Common stock1,175,250  1,173,656  1,187,127  1,215,482  0.1 % (3.3)%
Retained earnings109,942  84,485  90,535  111,405  30.1 % (1.3)%
Other components of shareholders' equity(12,994) (5,131) (5,036) 124  nm  nm 
Total shareholders' equity1,272,198  1,253,010  1,272,626  1,327,011  1.5 % (4.1)%
Total liabilities and shareholders' equity$10,514,303  $10,379,194  $9,763,209  $10,443,086  1.3 % 0.7 %
Common Shares Issued:           
Shares outstanding at end of period32,402,757  32,405,696  32,726,485  33,254,784     
Common shareholders' equity per share (1)$39.26  $38.67  $38.89  $39.90     
Common shareholders' tangible equity per share (1) (2)$31.20  $30.57  $30.78  $31.79     
Common shareholders' tangible equity to tangible assets (2)9.86 % 9.79 % 10.61 % 10.39 %    
Consolidated Tier 1 leverage capital ratio11.04 % 10.80 % 11.33 % 11.49 %    


(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
LOANSSep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017 Prior Qtr Prior Yr Qtr
            
Commercial real estate:           
Owner occupied$1,271,363  $1,256,730  $1,284,363  $1,369,130  1.2 % (7.1)%
Investment properties1,943,793  1,920,790  1,937,423  1,993,144  1.2 % (2.5)%
Multifamily real estate309,809  330,384  314,188  311,706  (6.2)% (0.6)%
Commercial construction154,071  166,089  148,435  157,041  (7.2)% (1.9)%
Multifamily construction172,433  147,576  154,662  136,532  16.8 % 26.3 %
One- to four-family construction498,549  480,591  415,327  399,361  3.7 % 24.8 %
Land and land development:           
Residential171,610  163,335  164,516  158,384  5.1 % 8.4 %
Commercial22,382  22,849  24,583  27,095  (2.0)% (17.4)%
Commercial business1,358,149  1,312,424  1,279,894  1,311,409  3.5 % 3.6 %
Agricultural business including secured by farmland359,966  336,709  338,388  339,932  6.9 % 5.9 %
One- to four-family real estate849,928  840,470  848,289  869,556  1.1 % (2.3)%
Consumer:           
Consumer secured by one- to four-family real estate539,143  536,007  522,931  535,300  0.6 % 0.7 %
Consumer-other171,323  170,778  165,885  165,859  0.3 % 3.3 %
Total loans receivable$7,822,519  $7,684,732  $7,598,884  $7,774,449  1.8 % 0.6 %
Restructured loans performing under their restructured terms$13,328  $13,793  $16,115  $12,744     
Loans 30 - 89 days past due and on accrual (1)$8,688  $8,040  $29,278  $9,619     
Total delinquent loans (including loans on non-accrual), net (2)$21,191  $22,620  $50,503  $34,792     
Total delinquent loans / Total loans receivable0.27 % 0.29 % 0.66 % 0.45 %    

 

(1) Includes $5,000 of purchased credit-impaired loans at September 30, 2018 compared to $6,000 at June 30, 2018, $943,000 at December 31, 2017, and $1.0 million at September 30, 2017.
(2) Delinquent loans include $568,000 of delinquent purchased credit-impaired loans at September 30, 2018 compared to $1.0 million at June 30, 2018, $2.2 million at December 31, 2017, and $2.9 million at September 30, 2017.

 

 
 
 
LOANS BY GEOGRAPHIC LOCATION           Percentage Change
  Sep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017 Prior Qtr Prior Yr Qtr
  Amount Percentage Amount Amount Amount    
               
Washington $3,640,209  46.5 % $3,550,945  $3,508,542  $3,515,881  2.5 % 3.5 %
Oregon 1,628,703  20.9 % 1,601,939  1,590,233  1,561,723  1.7 % 4.3 %
California 1,496,817  19.1 % 1,477,293  1,415,076  1,381,572  1.3 % 8.3 %
Idaho 504,297  6.4 % 500,201  492,603  495,041  0.8 % 1.9 %
Utah 63,053  0.8 % 76,414  73,382  304,740  (17.5)% (79.3)%
Other 489,440  6.3 % 477,940  519,048  515,492  2.4 % (5.1)%
Total loans receivable $7,822,519  100.0 % $7,684,732  $7,598,884  $7,774,449  1.8 % 0.6 %



          
ADDITIONAL FINANCIAL INFORMATION         
(dollars in thousands)         
 Quarters Ended Nine months ended
CHANGE IN THESep 30, 2018 Jun 30, 2018 Sep 30, 2017 Sep 30, 2018 Sep 30, 2017
ALLOWANCE FOR LOAN LOSSES         
Balance, beginning of period$93,875  $92,207  $88,586  $89,028  $85,997 
Provision for loan losses2,000  2,000  2,000  6,000  6,000 
Recoveries of loans previously charged off:         
Commercial real estate12  216  19  1,580  353 
Multifamily real estate        11 
Construction and land5  11  73  190  1,180 
One- to four-family real estate86  356  8  732  262 
Commercial business586  100  577  856  921 
Agricultural business, including secured by farmland  41  1  41  133 
Consumer46  106  98  264  293 
 735  830  776  3,663  3,153 
Loans charged off:         
Commercial real estate(102) (299) (584) (401) (631)
Construction and land(479)     (479)  
One- to four-family real estate(27)     (43)  
Commercial business(473) (375) (491) (1,367) (3,286)
Agricultural business, including secured by farmland(5) (329) (1,001) (341) (1,264)
Consumer(261) (159) (186) (797) (869)
 (1,347) (1,162) (2,262) (3,428) (6,050)
Net (charge-offs) recoveries(612) (332) (1,486) 235  (2,897)
Balance, end of period$95,263  $93,875  $89,100  $95,263  $89,100 
Net (charge-offs) recoveries / Average loans receivable(0.008)% (0.004)% (0.019)% 0.003 % (0.038)%
               
               


ALLOCATION OF       
ALLOWANCE FOR LOAN LOSSESSep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017
Specific or allocated loss allowance:       
Commercial real estate$25,147  $24,413  $22,824  $23,431 
Multifamily real estate3,745  3,718  1,633  1,625 
Construction and land24,564  27,034  27,568  29,422 
One- to four-family real estate4,423  3,932  2,055  2,040 
Commercial business17,948  19,141  18,311  18,657 
Agricultural business, including secured by farmland3,505  3,162  4,053  3,949 
Consumer8,110  5,725  3,866  4,016 
Total allocated87,442  87,125  80,310  83,140 
Unallocated7,821  6,750  8,718  5,960 
   Total allowance for loan losses$95,263  $93,875  $89,028  $89,100 
Allowance for loan losses / Total loans receivable1.22 % 1.22 % 1.17 % 1.15 %
Allowance for loan losses / Non-performing loans603 % 613 % 329 % 296 %
            
            


ADDITIONAL FINANCIAL INFORMATION       
(dollars in thousands)       
 Sep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017
NON-PERFORMING ASSETS       
Loans on non-accrual status:       
Secured by real estate:       
Commercial$3,728  $4,341  $10,646  $11,632 
Construction and land2,095  1,176  798  1,726 
One- to four-family1,827  2,281  3,264  2,878 
Commercial business2,921  2,673  3,406  7,144 
Agricultural business, including secured by farmland1,645  1,712  6,132  4,285 
Consumer1,703  1,176  1,297  1,462 
 13,919  13,359  25,543  29,127 
Loans more than 90 days delinquent, still on accrual:       
Secured by real estate:       
Commercial428      53 
Construction and land  784  298   
One- to four-family1,076  905  1,085  722 
Commercial business87  1  18  51 
Consumer296  253  85  101 
 1,887  1,943  1,486  927 
Total non-performing loans15,806  15,302  27,029  30,054 
Real estate owned (REO)364  473  360  1,496 
Other repossessed assets573  733  107  145 
Total non-performing assets$16,743  $16,508  $27,496  $31,695 
Total non-performing assets to total assets0.16 % 0.16 % 0.28 % 0.30 %
Purchased credit-impaired loans, net$12,944  $18,063  $21,310  $23,221 


    
    
 Quarters Ended Nine months ended
REAL ESTATE OWNEDSep 30, 2018 Jun 30, 2018 Sep 30, 2017 Sep 30, 2018 Sep 30, 2017
Balance, beginning of period$473  $328  $2,427  $360  $11,081 
Additions from loan foreclosures  393    502  46 
Additions from capitalized costs        54 
Proceeds from dispositions of REO(90) (314) (961) (385) (11,382)
Gain on sale of REO8  66  30  74  1,953 
Valuation adjustments in the period(27)     (187) (256)
Balance, end of period$364  $473  $1,496  $364  $1,496 



            
            
ADDITIONAL FINANCIAL INFORMATION           
(dollars in thousands)           
            
DEPOSIT COMPOSITION        Percentage Change
 Sep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017 Prior Qtr Prior Yr Qtr
            
Non-interest-bearing$3,469,294 $3,346,777 $3,265,544 $3,379,841 3.7 % 2.6 %
Interest-bearing checking1,034,678 1,012,519 971,137 955,486 2.2 % 8.3 %
Regular savings accounts1,627,560 1,635,080 1,557,500 1,577,292 (0.5)% 3.2 %
Money market accounts1,373,618 1,384,684 1,422,313 1,525,657 (0.8)% (10.0)%
Total interest-bearing transaction and savings accounts4,035,856 4,032,283 3,950,950 4,058,435 0.1 % (0.6)%
Total core deposits7,505,150 7,379,060 7,216,494 7,438,276 1.7 % 0.9 %
Interest-bearing certificates1,180,674 1,148,607 966,937 1,100,574 2.8 % 7.3 %
Total deposits$8,685,824 $8,527,667 $8,183,431 $8,538,850 1.9 % 1.7 %


 
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS          Percentage Change
 Sep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017 Prior Qtr Prior Yr Qtr
 Amount Percentage Amount Amount Amount    
Washington$4,849,807 55.8 % $4,735,357 $4,506,249 $4,654,406 2.4 % 4.2 %
Oregon1,916,183 22.1 % 1,886,435 1,797,147 1,811,459 1.6 % 5.8 %
California1,462,417 16.8 % 1,444,413 1,432,819 1,442,727 1.2 % 1.4 %
Idaho457,417 5.3 % 461,462 447,216 465,104 (0.9)% (1.7)%
Utah  %   165,154 nm  nm 
Total deposits$8,685,824 100.0 % $8,527,667 $8,183,431 $8,538,850 1.9 % 1.7%


 
 
 
INCLUDED IN TOTAL DEPOSITSSep 30, 2018 Jun 30, 2018 Dec 31, 2017 Sep 30, 2017
Public non-interest-bearing accounts$76,957 $86,040 $86,987 $86,262
Public interest-bearing transaction & savings accounts110,802 114,457 111,732 108,257
Public interest-bearing certificates25,367 24,390 23,685 26,543
Total public deposits$213,126 $224,887 $222,404 $221,062
Total brokered deposits$325,154 $280,055 $57,228 $171,718


            
            
ADDITIONAL FINANCIAL INFORMATION           
(dollars in thousands)           
 Actual Minimum to be categorized as "Adequately Capitalized" Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2018Amount Ratio Amount Ratio Amount Ratio
            
Banner Corporation-consolidated:           
Total capital to risk-weighted assets$1,223,107 13.76 % $711,305 8.00 % $889,131 10.00 %
Tier 1 capital to risk-weighted assets1,125,395 12.66 % 533,479 6.00 % 533,479 6.00 %
Tier 1 leverage capital to average assets1,125,395 11.04 % 407,660 4.00 % n/a n/a 
Common equity tier 1 capital to risk-weighted assets989,395 11.13 % 400,109 4.50 % n/a n/a 
            
Banner Bank:           
Total capital to risk-weighted assets1,133,724 13.03 % 696,147 8.00 % 870,184 10.00 %
Tier 1 capital to risk-weighted assets1,038,456 11.93 % 522,110 6.00 % 696,147 8.00 %
Tier 1 leverage capital to average assets1,038,453 10.49 % 395,837 4.00 % 494,796 5.00 %
Common equity tier 1 capital to risk-weighted assets1,038,456 11.93 % 391,583 4.50 % 565,619 6.50 %
            
Islanders Bank:           
Total capital to risk-weighted assets33,866 17.98 % 15,066 8.00 % 18,833 10.00 %
Tier 1 capital to risk-weighted assets31,511 16.73 % 11,300 6.00 % 15,066 8.00 %
Tier 1 leverage capital to average assets31,511 10.69 % 11,796 4.00 % 14,745 5.00 %
Common equity tier 1 capital to risk-weighted assets31,511 16.73 % 8,475 4.50 % 12,241 6.50 %



            
            
ADDITIONAL FINANCIAL INFORMATION           
(dollars in thousands)           
(rates / ratios annualized)           
            
ANALYSIS OF NET INTEREST SPREADQuarters Ended
 September 30, 2018 June 30, 2018 September 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:           
Held for sale loans$72,249 $895 4.91 % $112,664 $1,295 4.61 % $89,888 $983 4.34 %
Mortgage loans6,117,29981,130 5.26 % 6,050,56076,908 5.10 % 5,996,666 74,037 4.90 %
Commercial/agricultural loans1,511,07720,545 5.39 % 1,479,14819,381 5.26 % 1,520,946 17,992 4.69 %
Consumer and other loans141,5032,298 6.44 % 141,4012,269 6.44 % 140,758 2,209 6.23 %
Total loans(1)7,842,128104,868 5.31 % 7,783,77399,853 5.15 % 7,748,258 95,221 4.88 %
Mortgage-backed securities1,266,8628,915 2.79 % 1,261,8098,899 2.83 % 1,129,256 6,644 2.33 %
Other securities462,0483,279 2.82 % 473,9533,331 2.82 % 473,808 3,192 2.67 %
Interest-bearing deposits with banks65,191332 2.02 % 51,886211 1.63 % 51,607 159 1.22 %
FHLB stock20,345254 4.95 % 22,231129 2.33 % 16,961 62 1.45 %
Total investment securities1,814,44612,780 2.79 % 1,809,87912,570 2.79 % 1,671,632 10,057 2.39 %
Total interest-earning assets9,656,574117,648 4.83 % 9,593,652112,423 4.70 % 9,419,890 105,278 4.43 %
Non-interest-earning assets799,083   804,229   888,388   
Total assets$10,455,657   $10,397,881   $10,308,278   
Deposits:           
Interest-bearing checking accounts$1,006,010270 0.11 % $1,051,409281 0.11 % $946,585 218 0.09 %
Savings accounts1,631,1581,002 0.24 % 1,648,739811 0.20 % 1,557,475 538 0.14 %
Money market accounts1,381,9431,011 0.29 % 1,419,578792 0.22 % 1,534,867 653 0.17 %
Certificates of deposit1,153,4033,234 1.11 % 1,067,7422,380 0.89 % 1,151,725 1,780 0.61 %
Total interest-bearing deposits5,172,5145,517 0.42 % 5,187,4684,264 0.33% 5,190,652 3,189 0.24 %
Non-interest-bearing deposits3,424,587  % 3,324,104  % 3,300,185   %
Total deposits8,597,1015,517 0.25 % 8,511,5724,264 0.20 % 8,490,837 3,189 0.15 %
Other interest-bearing liabilities:           
FHLB advances249,8961,388 2.20 % 296,4951,499 2.03 % 165,586 569 1.36 %
Other borrowings110,86860 0.21 % 105,01349 0.19 % 116,297 84 0.29 %
Junior subordinated debentures140,2121,605 4.54 % 140,2121,548 4.43 % 140,212 1,226 3.47 %
Total borrowings500,9763,053 2.42 % 541,7203,096 2.29 % 422,095 1,879 1.77 %
Total funding liabilities9,098,0778,570 0.37 % 9,053,2927,360 0.33 % 8,912,932 5,068 0.23 %
Other non-interest-bearing liabilities(2)85,485   75,784   67,918   
Total liabilities9,183,562   9,129,076   8,980,850   
Shareholders' equity1,272,095   1,268,805   1,327,428   
Total liabilities and shareholders' equity$10,455,657   $10,397,881   $10,308,278   
Net interest income/rate spread  $109,078 4.46 %   $105,063 4.37 %  $100,210 4.20 %
Net interest margin   4.48 %    4.39 %   4.22 %
Additional Key Financial Ratios:                          
Return on average assets   1.43 %    1.25 %   0.97 %
Return on average equity   11.78 %    10.25 %   7.49 %
Average equity/average assets   12.17 %    12.20 %   12.88 %
Average interest-earning assets/average interest-bearing liabilities   170.21 %    167.45 %   167.83 %
Average interest-earning assets/average funding liabilities   106.14 %    105.97 %   105.69 %
Non-interest income/average assets   0.77 %    0.82 %   0.70 %
Non-interest expense/average assets   3.10 %    3.19 %   3.09 %
Efficiency ratio(4)   63.04 %    65.44 %   67.91 %
Adjusted efficiency ratio(5)   60.21 %    64.09 %   65.62 %


(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 this press release.


        
        
ADDITIONAL FINANCIAL INFORMATION       
(dollars in thousands)       
(rates / ratios annualized)       
        
ANALYSIS OF NET INTEREST SPREADNine months ended
 September 30, 2018 September 30, 2017
 Average Balance Interest and Dividends Yield/Cost(3) Average Balance Interest and Dividends Yield/Cost(3)
Interest-earning assets:       
Held for sale loans$81,244 $2,871 4.72 % $146,382 $4,423 4.04 %
Mortgage loans6,058,535 231,703 5.11 % 5,913,094 217,605 4.92 %
Commercial/agricultural loans1,482,377 57,348 5.17 % 1,496,549 52,717 4.71 %
Consumer and other loans141,180 6,821 6.46 % 139,181 6,559 6.30 %
Total loans(1) 7,763,336 298,743 5.14 % 7,695,206 281,304 4.89 %
Mortgage-backed securities1,196,282 25,145 2.81 % 1,013,913 17,529 2.31 %
Other securities466,313 9,699 2.78 % 466,572 9,420 2.70 %
Interest-bearing deposits with banks60,532 775 1.71 % 46,022 392 1.14 %
FHLB stock19,722 529 3.59 % 15,666 164 1.40 %
Total investment securities1,742,849 36,148 2.77 % 1,542,173 27,505 2.38 %
Total interest-earning assets9,506,185 334,891 4.71 % 9,237,379 308,809 4.47 %
Non-interest-earning assets802,915     902,435    
Total assets$10,309,100     $10,139,814    
Deposits:         
Interest-bearing checking accounts$1,020,457 797 0.10 % $923,757 627 0.09 %
Savings accounts1,627,297 2,440 0.20 % 1,556,075