Press Release

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

Company Release - 7/24/2019 4:00 PM ET

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 ORIGINATIONSQuarters 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 estate21,651  7,617  6,090  29,267  6,825 
Construction and land368,224  233,494  361,427  601,718  692,350 
Commercial business241,134  125,912  195,909  367,046  328,896 
Agricultural business20,702  32,059  41,480  52,761  68,054 
One-to four-family residential26,210  31,789  26,416  57,999  44,351 
Consumer119,970  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 land2,214  3,036  3,188  1,176 
One- to four-family2,665  1,538  1,544  2,281 
Commercial business2,983  3,614  2,936  2,673 
Agricultural business, including secured by farmland1,359  2,507  1,751  1,712 
Consumer3,230  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 land262      784 
One- to four-family995  640  658  905 
Commercial business1  1  1  1 
Consumer97  42  247  253 
 1,355  683  906  1,943 
Total non-performing loans18,409  19,293  15,654  15,302 
Real estate owned (REO)2,513  2,611  2,611  473 
Other repossessed assets112  50  592  733 
Total non-performing assets$21,034  $21,954  $18,857  $16,508 
Total non-performing assets to total assets0.18% 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 OWNEDJun 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 foreclosures61    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 SPREADQuarters Ended
 June 30, 2019 March 31, 2019 June 30, 2018
 Average BalanceInterest and DividendsYield / Cost(3) Average BalanceInterest and DividendsYield / Cost(3) Average BalanceInterest and DividendsYield / 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 loans6,800,802 89,682 5.29% 6,833,933 88,602 5.26% 6,050,560 76,908 5.10%
Commercial/agricultural loans1,769,603 23,924 5.42% 1,703,503 22,812 5.43% 1,479,148 19,381 5.26%
Consumer and other loans179,693 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 securities1,354,048 9,794 2.90% 1,392,118 10,507 3.06% 1,261,809 8,899 2.83%
Other securities448,721 3,310 2.96% 484,134 3,479 2.91% 473,953 3,331 2.82%
Interest-bearing deposits with banks53,955 340 2.53% 44,757 289 2.62% 51,886 211 1.63%
FHLB stock30,902 387 5.02% 31,761 266 3.40% 22,231 129 2.33%
Total investment securities1,887,626 13,831 2.94% 1,952,770 14,541 3.02% 1,809,879 12,570 2.79%
Total interest-earning assets10,685,387 130,838 4.91% 10,771,662 129,996 4.89% 9,593,652 112,423 4.70%
Non-interest-earning assets1,048,811    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 accounts1,851,913 2,119 0.46% 1,854,123 1,920 0.42% 1,648,739 811 0.20%
Money market accounts1,497,717 2,656 0.71% 1,490,326 2,251 0.61% 1,419,578 792 0.22%
Certificates of deposit1,105,844 3,684 1.34% 1,253,613 3,997 1.29% 1,067,742 2,380 0.89%
Total interest-bearing deposits5,633,008 9,023 0.64% 5,752,011 8,643 0.61% 5,187,468 4,264 0.33%
Non-interest-bearing deposits3,652,096  % 3,605,922  % 3,324,104  %
Total deposits9,285,104 9,023 0.39% 9,357,933 8,643 0.37% 8,511,572 4,264 0.20%
Other interest-bearing liabilities:           
FHLB advances514,703 3,370 2.63% 534,238 3,476 2.64% 296,495 1,499 2.03%
Other borrowings122,455 67 0.22% 118,008 60 0.21% 105,013 49 0.19%
Junior subordinated debentures140,212 1,683 4.81% 140,212 1,713 4.95% 140,212 1,548 4.43%
Total borrowings777,370 5,120 2.64% 792,458 5,249 2.69% 541,720 3,096 2.29%
Total funding liabilities10,062,474 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 liabilities10,213,910    10,302,328    9,129,076   
Shareholders' equity1,520,288    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 SPREADSix months ended
 June 30, 2019 June 30, 2018
 Average BalanceInterest and DividendsYield/Cost(3) Average BalanceInterest and DividendsYield/Cost(3)
Interest-earning assets:       
Held for sale loans$72,694 $1,688 4.68% $85,815 $1,976 4.64%
Mortgage loans6,817,276 178,284 5.27% 6,028,667 150,573 5.04%
Commercial/agricultural loans1,736,735 46,736 5.43% 1,467,789 36,803 5.06%
Consumer and other loans181,562 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 securities1,372,978 20,301 2.98% 1,160,407 16,230 2.82%
Other securities466,330 6,789 2.94% 468,480 6,420 2.76%
Interest-bearing deposits with banks49,382 629 2.57% 58,164 442 1.53%
FHLB stock31,329 653 4.20% 19,406 276 2.87%
Total investment securities1,920,019 28,372 2.98% 1,706,457 23,368 2.76%
Total interest-earning assets10,728,286 260,834 4.90% 9,429,744 217,243 4.65%
Non-interest-earning assets1,040,248    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 accounts1,853,012 4,039 0.44% 1,625,335 1,438 0.18%
Money market accounts1,494,042 4,907 0.66% 1,431,068 1,458 0.21%
Certificates of deposit1,179,320 7,681 1.31% 1,033,431 4,199 0.82%
Total interest-bearing deposits5,692,181 17,666 0.63% 5,117,634 7,622 0.30%
Non-interest-bearing deposits3,629,136  % 3,303,509  %
Total deposits9,321,317 17,666 0.38% 8,421,143 7,622 0.18%
Other interest-bearing liabilities:       
FHLB advances524,417 6,846 2.63% 226,407 2,177 1.94%
Other borrowings120,243 127 0.21% 103,073 119 0.23%
Junior subordinated debentures140,212 3,396 4.88% 140,212 2,889 4.16%
Total borrowings784,872 10,369 2.66% 469,692 5,185 2.23%
Total funding liabilities10,106,189 28,035 0.56% 8,890,835 12,807 0.29%
Other non-interest-bearing liabilities(2)151,685    70,908   
Total liabilities10,257,874    8,961,743   
Shareholders' equity1,510,660    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 OPERATIONSQuarters 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 income22,676  18,125  21,217  40,801  42,579 
Total GAAP revenue139,371  134,229  126,280  273,600  247,015 
Exclude net loss (gain) on sale of securities28  (1) (44) 27  (48)
Exclude net change in valuation of financial instruments carried at fair value114  (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%