Press Release

Banner Corporation Reports Net Income of $39.6 Million, or $1.15 Per Diluted Share, in Third Quarter 2019; Highlighted by Strong Core Deposit Growth

Company Release - 10/23/2019 4:00 PM ET

WALLA WALLA, Wash., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $39.6 million, or $1.15 per diluted share, in the third quarter of 2019, compared to $39.7 million, or $1.14 per diluted share, in the preceding quarter and a 5% increase when compared to $37.8 million, or $1.17 per diluted share, in the third quarter of 2018.  Third quarter of 2019 results include $676,000 of acquisition-related expenses, compared to $301,000 of acquisition-related expenses in the preceding quarter and $1.0 million in the third quarter of 2018.  In the first nine months of 2019, net income increased 14% to $112.6 million, or $3.23 per diluted share, compared to $99.0 million, or $3.05 per diluted share, in the first nine months a year ago.  The 2019 results include $3.1 million of acquisition-related expenses compared to $1.0 million of acquisition-related expenses for the 2018 period.

“Our third quarter 2019 performance continues to demonstrate the success of our super community bank model which is based on responsive service that generates client loyalty and attracts new client relationships," stated Mark J. Grescovich, President and Chief Executive Officer.  “We recently announced the pending acquisition of AltaPacific Bancorp, the holding company for AltaPacific Bank.  This transaction will increase Banner’s presence  in California by adding attractive core deposits and new commercial banking relationships within our existing geographic footprint.”

At September 30, 2019, Banner Corporation had $12.10 billion in assets, $8.74 billion in net loans and $9.73 billion in deposits.  Banner operates 172 branch offices, including branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2019 Highlights

  • Revenues decreased 1% to $137.5 million, compared to $139.4 million in the preceding quarter and increased 6% compared to $129.5 million in the third quarter a year ago.
  • Net interest income, before the provision for loan losses, was $116.6 million, compared to $116.7 million in the preceding quarter and increased 7% from $109.1 million in the third quarter a year ago.
  • Net interest margin was 4.25%, compared to 4.38% in the preceding quarter and 4.48% in the third quarter a year ago.
  • Mortgage banking revenue increased to $6.6 million, compared to $5.9 million in the preceding quarter and increased 14% compared to $5.8 million in the third quarter a year ago.
  • Return on average assets was 1.31% compared to 1.36% in the preceding quarter and 1.43% in the third quarter a year ago.
  • Net loans receivable increased to $8.74 billion at September 30, 2019, compared to $8.65 billion at June 30, 2019, and increased 13% when compared to $7.73 billion at September 30, 2018.
  • Non-performing assets remained low at $18.6 million, or 0.15% of total assets, at September 30, 2019, compared to $21.0 million, or 0.18% of total assets three months earlier, and $16.7 million, or 0.16% of total assets, at September 30, 2018.
  • Provision for loan losses was $2.0 million, and the allowance for loan losses was $97.8 million, or 1.11% of total loans receivable, as of September 30, 2019.
  • Core deposits increased 4% to $8.51 billion at September 30, 2019, compared to $8.22 billion at June 30, 2019 and increased 13% compared to $7.51 billion a year ago.  Core deposits represented 87% of total deposits at September 30, 2019.
  • Quarterly dividends to shareholders were $0.41 per share.
  • Common shareholders’ equity per share increased 2% to $44.80 at September 30, 2019, compared to $43.99 at the preceding quarter end and an increase of 14% from $39.26 a year ago.
  • Tangible common shareholders' equity per share* increased 2% to $34.10 at September 30, 2019, compared to $33.36 at the preceding quarter end and an increase of 9% from $31.20 a year ago.
  • Repurchased 400,000 shares of common stock at an average cost of $54.62 per share.

*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 adjusted revenue (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 adjusted revenue) 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.

Significant Recent Initiatives and Events

On July 24, 2019, Banner and AltaPacific Bancorp ("AltaPacific"), the holding company for AltaPacific Bank, entered into a definitive merger agreement pursuant to which Banner will acquire AltaPacific in an all-stock transaction, subject to the terms and conditions set forth therein.  Under the merger agreement, AltaPacific will merge with and into Banner, and immediately thereafter AltaPacific Bank will merge with and into Banner Bank.  The merger agreement specifies AltaPacific shareholders will receive 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, subject to potential adjustment as provided in the merger agreement. Based on the closing price of $54.19 per share of Banner common stock on July 23, 2019, the merger consideration would have an aggregate value of approximately $87.4 million.  The transaction is expected to close in the fourth quarter of 2019, subject to customary closing conditions.

AltaPacific Bank is an independent business bank headquartered in Santa Rosa, California and has additional banking offices in Glendora, Ontario, Riverside, San Bernardino and Temecula, California. The bank is focused on meeting the specialized needs of small to medium-sized businesses and professionals throughout California. At September 30, 2019, AltaPacific Bank had assets of $420 million, a loan portfolio of $334 million, and a deposit base of $297 million.  Banner expects the transaction to be immediately accretive to earnings per share, excluding one-time transaction expenses.  The combined company will have approximately $12.5 billion in assets.

Income Statement Review

Banner's net interest margin was 4.25% for the third quarter of 2019, a 13 basis-point decrease compared to 4.38% in the preceding quarter and a 23 basis-point decrease compared to 4.48% in the third quarter a year ago.  The decrease in net interest margin during the quarter reflects lower yields on average interest-earning assets largely as a result of two 25 basis point decreases in the targeted Fed Funds Rate in the third quarter coupled with a longer term decline in the 10 year treasury yield.  Acquisition accounting adjustments added six basis points to the net interest margin in the current quarter compared to seven basis points in the preceding quarter and 12 basis points in the third quarter a year ago.  The total purchase discount for acquired loans was $21.3 million at September 30, 2019, compared to $22.6 million at June 30, 2019, and $15.4 million at September 30, 2018.  In the first nine months of the year, Banner’s net interest margin was 4.33% compared to 4.41% in the first nine months of 2018.

Average interest-earning asset yields decreased 12 basis points to 4.79% compared to 4.91% for the preceding quarter and decreased four basis points compared to 4.83% in the third quarter a year ago.  Average loan yields decreased 13 basis points to 5.20% compared to 5.33% in the preceding quarter and decreased 11 basis points compared to 5.31% in the third quarter a year ago.  Loan discount accretion added seven basis points to loan yields in the third quarter of 2019, compared to nine basis points in the preceding quarter, and 15 basis points in the third quarter a year ago.  Deposit costs were 0.42% in the third quarter of 2019, a three basis-point increase compared to the preceding quarter and a 17 basis-point increase compared to the third quarter a year ago.  The total cost of funds was 0.57% during the third quarter of 2019, a one basis-point increase compared to the preceding quarter and a 20 basis-point increase compared to the third quarter a year ago.

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 $20.9 million in the third quarter of 2019, compared to $22.7 million in the second quarter of 2019 and $20.4 million in the third quarter a year ago.  Deposit fees and other service charges were $10.3 million in the third quarter of 2019, compared to $14.0 million in the preceding quarter and $12.3 million in the third quarter a year ago.  The decrease in deposit fees and other service charges is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, which reduced the amount of interchange fees Banner can charge for certain debit card transactions.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $6.6 million in the third quarter, compared to $5.9 million in the preceding quarter and $5.8 million in the third quarter of 2018.  The higher mortgage banking revenue reflected an increase in residential and multifamily mortgage held-for-sale loan production.  The increase in residential held-for-sale loan production was primarily due to increased refinance activity.  Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2019, compared to 77% in the prior quarter and 82% in the third quarter of 2018.  In the first nine months of 2019, total non-interest income was $61.7 million, compared to $63.0 million in the first nine months of 2018.

Banner’s third quarter 2019 results included a $69,000 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 $2,000 net loss on the sale of securities.  In the preceding quarter, results included an $114,000 net loss for fair value adjustments and a $28,000 net loss on the sale of securities.  In the third quarter a year ago, results included a $45,000 net gain for fair value adjustments.

Total revenue was $137.5 million for the third quarter of 2019, compared to $139.4 million in the preceding quarter and increased 6% compared to $129.5 million in the third quarter a year ago.  Year-to-date, total revenue increased 9% to $411.1 million compared to $376.5 million for the same period one year earlier.  Adjusted revenue* (the total of net interest income before provision for loan losses and non-interest income revenue excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $137.6 million in the third quarter of 2019, compared to $139.5 million in the preceding quarter and $129.4 million in the third quarter of 2018.  In the first nine months of the year, adjusted revenue* was $411.3 million, compared to $372.9 million in the first nine months of 2018.

Banner’s total non-interest expense was $87.3 million in the third quarter of 2019, compared to $86.7 million in the preceding quarter and $81.6 million in the third quarter of 2018.  Acquisition-related expenses were $676,000 for the third quarter of 2019, compared to $301,000 for the preceding quarter, and $1.0 million in the third quarter of 2018.  Other non-interest expense items of significance for the third quarter of 2019 include a credit of $2.7 million for previously paid deposit insurance premiums which resulted in a net deposit insurance benefit of $1.6 million for the quarter, which came as a result of the FDIC exceeding its stated Deposit Insurance Fund Reserve Ratio.  This net deposit insurance benefit compares to a deposit insurance expense of $1.4 million in the preceding quarter and a deposit insurance expense of $991,000 in the third quarter of 2018.  The current quarter also includes a $1.6 million adjustment to salary and employee benefits expense as a result of Banner decreasing the discount rate used to calculate its liability associated with deferred compensation plans.  Year-to-date, total non-interest expense was $264.0 million, compared to $246.0 million in the same period a year earlier.  Banner’s efficiency ratio was 63.50% for the current quarter, compared to 62.22% in the preceding quarter and 63.04% in the year ago quarter.  Banner’s adjusted efficiency ratio* was 60.71% for the current quarter, compared to 59.56% in the preceding quarter and 60.21% in the year ago quarter.

For the third quarter of 2019, Banner recorded $8.6 million in state and federal income tax expense for an effective tax rate of 17.9%, reflecting a refund of state income taxes totaling $1.2 million as well as adjustments related to filing its federal and state income tax returns and 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 $12.10 billion at September 30, 2019, compared to $11.85 billion at June 30, 2019, and $10.51 billion at September 30, 2018.  The total of securities and interest-bearing deposits held at other banks was $1.87 billion at both September 30, 2019 and June 30, 2019. The total of securities and interest-bearing deposits held at other banks was $1.76 billion at September 30, 2018.  The average effective duration of Banner's securities portfolio was approximately 3.1 years at September 30, 2019, compared to 4.2 years at September 30, 2018.

Net loans receivable increased to $8.74 billion at September 30, 2019, compared to $8.65 billion at June 30, 2019, and increased 13% when compared to $7.73 billion at September 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 $4.01 billion at September 30, 2019, compared to $3.95 billion at June 30, 2019, and increased 14% compared to $3.52 billion a year ago.  Commercial business loans increased modestly to $1.62 billion at September 30, 2019, compared to $1.60 billion at June 30, 2019, and increased 19% compared to $1.36 billion a year ago.  Agricultural business loans increased by 3% to $390.5 million at September 30, 2019, compared to $380.8 million three months earlier and increased by 9% compared to $360.0 million a year ago.  Total construction, land and land development loans were $1.08 billion at September 30, 2019, unchanged from June 30, 2019, and a 6% increase compared to $1.02 billion a year earlier.  Consumer loans decreased slightly to $779.6 million at September 30, 2019, compared to $790.0 million at June 30, 2019, and increased 10% compared to $710.5 million a year ago.  One- to four-family loans increased modestly to $947.5 million at September 30, 2019, compared to $944.6 million at June 30, 2019, and increased 12% compared to $849.9 million a year ago.

Loans held for sale increased substantially to $244.9 million at September 30, 2019, compared to $170.7 million at June 30, 2019, and $72.9 million at September 30, 2018.  The volume of one- to four- family residential mortgage loans sold was $204.6 million in the current quarter, compared to $139.0 million in the preceding quarter and $134.1 million in the third quarter a year ago.  During the third quarter of 2019, Banner sold $79.4 million in multifamily loans.  Banner did not sell any multifamily loans in the preceding quarter and sold $94.0 million in the third quarter a year ago.

Total deposits increased 5% to $9.73 billion at September 30, 2019, compared to $9.29 billion at June 30, 2019, and increased 12% when compared to $8.69 billion a year ago.  Non-interest-bearing account balances increased 6% to $3.89 billion at September 30, 2019, compared to $3.67 billion at June 30, 2019, and increased 12% compared to $3.47 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 4% from the prior quarter and increased 13% compared to a year ago.  Core deposits represented 87% of total deposits at September 30, 2019, compared to 88% of total deposits at June 30, 2019, and 86% of total deposits a year earlier.  Certificates of deposit increased 14% to $1.22 billion at September 30, 2019, compared to $1.07 billion at June 30, 2019, and increased 3% compared to $1.18 billion a year earlier.  The increase in certificates of deposit primarily reflects the increase in brokered deposits to $299.5 million at September 30, 2019, compared to $138.4 million at June 30, 2019 and were $352.2 million a year ago.  The increase in brokered deposits reflects the decision to fund a smaller portion of the balance sheet with FHLB borrowings.  FHLB borrowings were reduced to $382.0 million at September 30, 2019 compared to $606.0 million at June 30, 2019 and were $221.2 million a year earlier.

At September 30, 2019, total common shareholders' equity was $1.53 billion, or 12.65% of assets, compared to $1.52 billion or 12.84% of assets at June 30, 2019, and $1.27 billion or 12.10% of assets a year ago.  At September 30, 2019, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.17 billion, or 9.93% of tangible assets*, compared to $1.15 billion, or 10.05% of tangible assets, at June 30, 2019, and $1.01 billion, or 9.86% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $34.10 at September 30, 2019, compared to $31.20 per share a year ago.

Banner repurchased 400,000 shares of its common stock in the third quarter of 2019 at an average cost of $54.62 per share.  In the second quarter of 2019, Banner repurchased 600,000 shares of its common stock at an average cost of $53.46 per share.  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 September 30, 2019, Banner's common equity Tier 1 capital ratio was 10.86%, its Tier 1 leverage capital to average assets ratio was 10.70%, and its total capital to risk-weighted assets ratio was 13.20%.

Credit Quality

The allowance for loan losses was $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans compared to $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% of non-performing loans, and $95.3 million at September 30, 2018, or 1.22% of total loans receivable outstanding and 603% of non-performing loans.  Net loan charge-offs totaled $2.5 million in the third quarter, compared to net loan charge-offs of $1.1 million in the preceding quarter and net loan charge-offs of $612,000 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 $18.3 million at September 30, 2019, compared to $18.4 million at June 30, 2019, and $15.8 million a year ago.  Real estate owned and other repossessed assets were $343,000 at September 30, 2019, compared to $2.6 million at June 30, 2019, and $937,000 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 losses is recorded for acquired loans at the acquisition date.  At September 30, 2019, the total purchase discount for acquired loans was $21.3 million.

Banner's total non-performing assets were $18.6 million, or 0.15% of total assets, at September 30, 2019, compared to $21.0 million, or 0.18% of total assets, at June 30, 2019, and $16.7 million, or 0.16% of total assets, a year ago.  In addition to non-performing assets, there were $12.6 million of purchased credit-impaired loans at September 30, 2019, compared to $12.9 million at both June 30, 2019 and September 30, 2018.

Conference Call

Banner will host a conference call on Thursday, October 24, 2019, 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 10135112, or at www.bannerbank.com.

About the Company

Banner Corporation is a $12.10 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 AltaPacific 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 requisite regulatory approvals for the proposed merger of Banner and AltaPacific may be delayed or may not be obtained (or may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed merger); (3) the requisite approval of AltaPacific shareholders may be delayed or may not be obtained, the other closing conditions to the merger may be delayed or may not be obtained, or the merger agreement may be terminated; (4) business disruption may occur following or in connection with the proposed merger of Banner and AltaPacific; (5) Banner’s or AltaPacific’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; (6) 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; (7) 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; (8) 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; (9) competitive pressures among depository institutions; (10) interest rate movements and their impact on customer behavior and net interest margin; (11) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (12) fluctuations in real estate values; (13) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (14) the ability to access cost-effective funding; (15) changes in financial markets; (16) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (17) the costs, effects and outcomes of litigation; (18) 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; (19) changes in accounting principles, policies or guidelines; (20) future acquisitions by Banner of other depository institutions or lines of business; (21) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors; and (22) 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 Nine Months Ended
(in thousands except shares and per share data) Sep 30, 2019 Jun 30, 2019 Sep 30, 2018 Sep 30, 2019 Sep 30, 2018
           
INTEREST INCOME:          
Loans receivable $118,096  $117,007  $104,868  $350,558  $298,743 
Mortgage-backed securities 9,415  9,794  8,915  29,716  25,145 
Securities and cash equivalents 3,925  4,037  3,865  11,996  11,003 
  131,436  130,838  117,648  392,270  334,891 
INTEREST EXPENSE:          
Deposits 10,014  9,023  5,517  27,680  13,139 
Federal Home Loan Bank advances 3,107  3,370  1,388  9,953  3,564 
Other borrowings 82  67  60  209  179 
Junior subordinated debentures 1,612  1,683  1,605  5,008  4,495 
  14,815  14,143  8,570  42,850  21,377 
Net interest income before provision for loan losses 116,621  116,695  109,078  349,420  313,514 
PROVISION FOR LOAN LOSSES 2,000  2,000  2,000  6,000  6,000 
Net interest income 114,621  114,695  107,078  343,420  307,514 
NON-INTEREST INCOME:          
Deposit fees and other service charges 10,331  14,046  12,255  36,995  35,535 
Mortgage banking operations 6,616  5,936  5,816  15,967  15,324 
Bank-owned life insurance 1,076  1,123  1,726  3,475  3,511 
Miscellaneous 2,914  1,713  569  5,431  4,995 
  20,937  22,818  20,366  61,868  59,365 
Net (loss) gain on sale of securities (2) (28)   (29) 48 
Net change in valuation of financial instruments carried at fair value (69) (114) 45  (172) 3,577 
Total non-interest income 20,866  22,676  20,411  61,667  62,990 
NON-INTEREST EXPENSE:          
Salary and employee benefits 59,090  55,629  48,930  169,359  150,491 
Less capitalized loan origination costs (7,889) (7,399) (4,318) (20,137) (13,062)
Occupancy and equipment 12,566  12,681  12,385  39,013  35,725 
Information / computer data services 5,657  5,273  4,766  16,256  13,711 
Payment and card processing services 4,330  4,041  3,748  12,355  11,179 
Professional and legal expenses 2,704  2,336  3,010  7,474  11,276 
Advertising and marketing 2,221  2,065  1,786  5,815  5,758 
Deposit insurance (benefit) expense (1,604) 1,418  991  1,232  3,353 
State/municipal business and use taxes 1,011  1,007  902  2,963  2,430 
Real estate operations 126  260  433  263  553 
Amortization of core deposit intangibles 1,985  2,053  1,348  6,090  4,112 
Miscellaneous 6,435  7,051  6,646  20,230  19,444 
  86,632  86,415  80,627  260,913  244,970 
Acquisition-related expenses 676  301  1,005  3,125  1,005 
Total non-interest expense 87,308  86,716  81,632  264,038  245,975 
Income before provision for income taxes 48,179  50,655  45,857  141,049  124,529 
PROVISION FOR INCOME TAXES 8,602  10,955  8,084  28,426  25,542 
NET INCOME $39,577  $39,700  $37,773  $112,623  $98,987 
Earnings per share available to common shareholders:          
Basic $1.15  $1.14  $1.17  $3.24  $3.06 
Diluted $1.15  $1.14  $1.17  $3.23  $3.05 
Cumulative dividends declared per common share $0.41  $0.41  $0.38  $1.23  $1.58 
Weighted average common shares outstanding:          
Basic 34,407,462  34,831,047  32,256,789  34,760,607  32,300,688 
Diluted 34,497,994  34,882,359  32,376,623  34,850,006  32,406,414 
Decrease in common shares outstanding (400,286) (579,103) (2,939) (1,009,415) (323,728)


FINANCIAL CONDITION         Percentage Change
(in thousands except shares and per share data) Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018 Prior Qtr Prior Yr Qtr
             
ASSETS            
Cash and due from banks $250,671  $187,043  $231,029  $184,417  34.0% 35.9%
Interest-bearing deposits 73,785  59,753  41,167  64,244  23.5% 14.9%
Total cash and cash equivalents 324,456  246,796  272,196  248,661  31.5% 30.5%
Securities - trading 25,672  25,741  25,896  25,764  (0.3)% (0.4)%
Securities - available for sale 1,539,908  1,561,009  1,636,223  1,412,273  (1.4)% 9.0%
Securities - held to maturity 230,056  203,222  234,220  258,699  13.2% (11.1)%
Total securities 1,795,636  1,789,972  1,896,339  1,696,736  0.3% 5.8%
Federal Home Loan Bank stock 25,623  34,583  31,955  19,196  (25.9)% 33.5%
Loans held for sale 244,889  170,744  171,031  72,850  43.4% 236.2%
Loans receivable 8,835,368  8,746,550  8,684,595  7,822,519  1.0% 12.9%
Allowance for loan losses (97,801) (98,254) (96,485) (95,263) (0.5)% 2.7%
Net loans receivable 8,737,567  8,648,296  8,588,110  7,727,256  1.0% 13.1%
Accrued interest receivable 40,033  40,238  38,593  37,676  (0.5)% 6.3%
Real estate owned held for sale, net 228  2,513  2,611  364  (90.9)% (37.4)%
Property and equipment, net 171,279  171,233  171,809  151,212  % 13.3%
Goodwill 339,154  339,154  339,154  242,659  % 39.8%
Other intangibles, net 26,610  28,595  32,924  18,499  (6.9)% 43.8%
Bank-owned life insurance 179,076  178,922  177,467  163,265  0.1% 9.7%
Other assets 213,291  196,328  149,128  135,929  8.6% 56.9%
Total assets $12,097,842  $11,847,374  $11,871,317  $10,514,303  2.1% 15.1%
LIABILITIES            
Deposits:            
Non-interest-bearing $3,885,210  $3,671,995  $3,657,817  $3,469,294  5.8% 12.0%
Interest-bearing transaction and savings accounts 4,624,970  4,546,202  4,498,966  4,035,856  1.7% 14.6%
Interest-bearing certificates 1,218,591  1,070,770  1,320,265  1,180,674  13.8% 3.2%
Total deposits 9,728,771  9,288,967  9,477,048  8,685,824  4.7% 12.0%
Advances from Federal Home Loan Bank 382,000  606,000  540,189  221,184  (37.0)% 72.7%
Customer repurchase agreements and other borrowings 120,014  118,370  118,995  98,979  1.4% 21.3%
Junior subordinated debentures at fair value 113,417  113,621  114,091  113,110  (0.2)% 0.3%
Accrued expenses and other liabilities 181,351  159,131  102,061  82,530  14.0% 119.7%
Deferred compensation 41,354  40,230  40,338  40,478  2.8% 2.2%
Total liabilities 10,566,907  10,326,319  10,392,722  9,242,105  2.3% 14.3%
SHAREHOLDERS' EQUITY            
Common stock 1,286,711  1,306,888  1,337,436  1,175,250  (1.5)% 9.5%
Retained earnings 203,704  178,257  134,055  109,942  14.3% 85.3%
Other components of shareholders' equity 40,520  35,910  7,104  (12,994) 12.8% nm 
Total shareholders' equity 1,530,935  1,521,055  1,478,595  1,272,198  0.6% 20.3%
Total liabilities and shareholders' equity $12,097,842  $11,847,374  $11,871,317  $10,514,303  2.1% 15.1%
Common Shares Issued:            
Shares outstanding at end of period 34,173,357  34,573,643  35,182,772  32,402,757     
Common shareholders' equity per share (1) $44.80  $43.99  $42.03  $39.26     
Common shareholders' tangible equity per share (1) (2) $34.10  $33.36  $31.45  $31.20     
Common shareholders' tangible equity to tangible assets (2) 9.93% 10.05% 9.62% 9.86%    
Consolidated Tier 1 leverage capital ratio 10.70% 10.83% 10.98% 11.04%    
 
(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 final two pages of the press release tables.
 


ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
          Percentage Change
LOANS Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018 Prior Qtr Prior Yr Qtr
             
Commercial real estate:            
Owner occupied $1,463,303  $1,433,995  $1,430,097  $1,271,363  2.0% 15.1%
Investment properties 2,150,938  2,116,306  2,131,059  1,943,793  1.6% 10.7%
Multifamily real estate 399,814  402,241  368,836  309,809  (0.6)% 29.1%
Commercial construction 190,532  172,931  172,410  154,071  10.2% 23.7%
Multifamily construction 214,878  189,160  184,630  172,433  13.6% 24.6%
One- to four-family construction 488,945  503,061  534,678  498,549  (2.8)% (1.9)%
Land and land development:            
Residential 163,829  187,180  188,508  171,610  (12.5)% (4.5)%
Commercial 26,119  27,470  27,278  22,382  (4.9)% 16.7%
Commercial business 1,619,391  1,598,788  1,483,614  1,358,149  1.3% 19.2%
Agricultural business including secured by farmland 390,505  380,805  404,873  359,966  2.5% 8.5%
One- to four-family real estate 947,475  944,617  973,616  849,928  0.3% 11.5%
Consumer:            
Consumer secured by one- to four-family real estate 566,792  575,658  568,979  539,143  (1.5)% 5.1%
Consumer-other 212,847  214,338  216,017  171,323  (0.7)% 24.2%
Total loans receivable $8,835,368  $8,746,550  $8,684,595  $7,822,519  1.0% 12.9%
Restructured loans performing under their restructured terms $6,721  $6,594  $13,422  $13,328     
Loans 30 - 89 days past due and on accrual (1) $11,496  $17,923  $25,108  $8,688     
Total delinquent loans (including loans on non-accrual), net (2) $26,830  $34,479  $38,721  $21,191     
Total delinquent loans / Total loans receivable 0.30% 0.40% 0.45% 0.27%    
 
(1)  Includes $112,000 of purchased credit-impaired loans at September 30, 2019 compared to $3,000 at December 31, 2018 and $5,000 at September 30, 2018.
(2)  Delinquent loans include $412,000 of delinquent purchased credit-impaired loans at September 30, 2019 compared to $519,000 at December 31, 2018 and $568,000 at September 30, 2018.
 


LOANS BY GEOGRAPHIC LOCATION           Percentage Change
  Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018 Prior Qtr Prior Yr Qtr
  Amount Percentage Amount Amount Amount    
               
Washington $4,313,972  48.8% $4,293,854  $4,324,588  $3,640,209  0.5% 18.5%
Oregon 1,615,192  18.3% 1,628,102  1,636,152  1,628,703  (0.8)% (0.8)%
California 1,729,208  19.5% 1,659,326  1,596,604  1,496,817  4.2% 15.5%
Idaho 552,523  6.3% 548,189  521,026  504,297  0.8% 9.6%
Utah 62,197  0.7% 62,944  57,318  63,053  (1.2)% (1.4)%
Other 562,276  6.4% 554,135  548,907  489,440  1.5% 14.9%
Total loans receivable $8,835,368  100.0% $8,746,550  $8,684,595  $7,822,519  1.0% 12.9%
 

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

LOAN ORIGINATIONSQuarters Ended Nine Months Ended
 Sep 30, 2019 Jun 30, 2019 Sep 30, 2018 Sep 30, 2019 Sep 30, 2018
Commercial real estate$114,528  $81,361  $142,393  $290,085  $363,899 
Multifamily real estate29,645  21,651  2,215  58,913  9,040 
Construction and land303,151  368,224  370,484  904,869  1,062,834 
Commercial business194,606  241,134  303,472  561,652  632,368 
Agricultural business12,363  20,702  36,747  65,124  104,801 
One-to four-family residential27,734  26,210  51,459  85,733  95,810 
Consumer101,613  119,970  74,339  285,357  259,161 
Total loan originations (excluding loans held for sale)$783,640  $879,252  $981,109  $2,251,733  $2,527,913 


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
  Quarters Ended Nine Months Ended
CHANGE IN THE Sep 30, 2019 Jun 30, 2019 Sep 30, 2018 Sep 30, 2019 Sep 30, 2018
ALLOWANCE FOR LOAN LOSSES          
Balance, beginning of period $98,254  $97,308  $93,875  $96,485  $89,028 
Provision for loan losses 2,000  2,000  2,000  6,000  6,000 
Recoveries of loans previously charged off:          
Commercial real estate 107  149  12  277  1,580 
Construction and land 156  30  5  208  190 
One- to four-family real estate 129  230  86  402  732 
Commercial business 162  215  586  400  856 
Agricultural business, including secured by farmland 2  35    37  41 
Consumer 154  223  46  487  264 
  710  882  735  1,811  3,663 
Loans charged off:          
Commercial real estate (314) (393) (102) (1,138) (401)
Construction and land     (479)   (479)
One- to four-family real estate (86)   (27) (86) (43)
Commercial business (1,599) (802) (473) (2,991) (1,367)
Agricultural business, including secured by farmland (741) (162) (5) (907) (341)
Consumer (423) (579) (261) (1,373) (797)
  (3,163) (1,936) (1,347) (6,495) (3,428)
Net (charge-offs) recoveries (2,453) (1,054) (612) (4,684) 235 
Balance, end of period $97,801  $98,254  $95,263  $97,801  $95,263 
Net (charge-offs) recoveries / Average loans receivable (0.027)% (0.012)% (0.008)% (0.053)% 0.003%


ALLOCATION OF        
ALLOWANCE FOR LOAN LOSSES Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018
Specific or allocated loss allowance:        
Commercial real estate $28,515  $26,730  $27,132  $25,147 
Multifamily real estate 4,283  4,344  3,818  3,745 
Construction and land 22,569  23,554  24,442  24,564 
One- to four-family real estate 4,569  4,701  4,714  4,423 
Commercial business 21,147  19,557  19,438  17,948 
Agricultural business, including secured by farmland 3,895  3,691  3,778  3,505 
Consumer 8,441  8,452  7,972  8,110 
Total allocated 93,419  91,029  91,294  87,442 
Unallocated 4,382  7,225  5,191  7,821 
Total allowance for loan losses $97,801  $98,254  $96,485  $95,263 
Allowance for loan losses / Total loans receivable 1.11% 1.12% 1.11% 1.22%
Allowance for loan losses / Non-performing loans 536% 534% 616% 603%


        
ADDITIONAL FINANCIAL INFORMATION       
(dollars in thousands)       
 Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018
NON-PERFORMING ASSETS       
Loans on non-accrual status:       
Secured by real estate:       
Commercial$5,092  $4,603  $4,088  $3,728 
Multifamily87       
Construction and land1,318  2,214  3,188  2,095 
One- to four-family3,007  2,665  1,544  1,827 
Commercial business3,035  2,983  2,936  2,921 
Agricultural business, including secured by farmland757  1,359  1,751  1,645 
Consumer2,473  3,230  1,241  1,703 
 15,769  17,054  14,748  13,919 
Loans more than 90 days delinquent, still on accrual:       
Secured by real estate:       
Commercial89      428 
Construction and land1,141  262     
One- to four-family652  995  658  1,076 
Commercial business358  1  1  87 
Consumer247  97  247  296 
 2,487  1,355  906  1,887 
Total non-performing loans18,256  18,409  15,654  15,806 
Real estate owned (REO)228  2,513  2,611  364 
Other repossessed assets115  112  592  573 
Total non-performing assets$18,599  $21,034  $18,857  $16,743 
Total non-performing assets to total assets0.15% 0.18% 0.16% 0.16%
Purchased credit-impaired loans, net$12,575  $12,945  $14,413  $12,944 


    
 Quarters Ended Nine Months Ended
REAL ESTATE OWNEDSep 30, 2019 Jun 30, 2019 Sep 30, 2018 Sep 30, 2019 Sep 30, 2018
Balance, beginning of period$2,513  $2,611  $473  $2,611  $360 
Additions from loan foreclosures48  61    109  502 
Proceeds from dispositions of REO(2,333) (150) (90) (2,483) (385)
(Loss) gain on sale of REO  (9) 8  (9) 74 
Valuation adjustments in the period    (27)   (187)
Balance, end of period$228  $2,513  $364  $228  $364 


             
ADDITIONAL FINANCIAL INFORMATION            
(dollars in thousands)            
             
DEPOSIT COMPOSITION         Percentage Change
  Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018 Prior Qtr Prior Yr Qtr
             
Non-interest-bearing $3,885,210  $3,671,995  $3,657,817  $3,469,294  5.8% 12.0%
Interest-bearing checking 1,209,826  1,187,035  1,191,016  1,034,678  1.9% 16.9%
Regular savings accounts 1,863,839  1,848,048  1,842,581  1,627,560  0.9% 14.5%
Money market accounts 1,551,305  1,511,119  1,465,369  1,373,618  2.7% 12.9%
Total interest-bearing transaction and savings accounts 4,624,970  4,546,202  4,498,966  4,035,856  1.7% 14.6%
Total core deposits 8,510,180  8,218,197  8,156,783  7,505,150  3.6% 13.4%
Interest-bearing certificates 1,218,591  1,070,770  1,320,265  1,180,674  13.8% 3.2%
Total deposits $9,728,771  $9,288,967  $9,477,048  $8,685,824  4.7% 12.0%


GEOGRAPHIC CONCENTRATION OF DEPOSITS           Percentage Change
  Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018 Prior Qtr Prior Yr Qtr
  Amount Percentage Amount Amount Amount    
Washington $5,833,547  60.0% $5,503,280  $5,674,328  $4,849,807  6.0% 20.3%
Oregon 1,990,155  20.4% 1,919,051  1,891,145  1,916,183  3.7% 3.9%
California 1,429,939  14.7% 1,399,137  1,434,033  1,462,417  2.2% (2.2)%
Idaho 475,130  4.9% 467,499  477,542  457,417  1.6% 3.9%
Total deposits $9,728,771  100.0% $9,288,967  $9,477,048  $8,685,824  4.7% 12.0%


INCLUDED IN TOTAL DEPOSITS Sep 30, 2019 Jun 30, 2019 Dec 31, 2018 Sep 30, 2018
Public non-interest-bearing accounts $114,879  $102,348  $96,009  $76,957 
Public interest-bearing transaction & savings accounts 119,729  121,262  121,392  110,802 
Public interest-bearing certificates 26,609  28,656  30,089  25,367 
Total public deposits $261,217  $252,266  $247,490  $213,126 
Total brokered deposits $299,496  $138,395  $377,347  $325,154 


             
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, 2019 Amount Ratio Amount Ratio Amount Ratio
             
Banner Corporation-consolidated:            
Total capital to risk-weighted assets $1,337,087  13.20% $810,546  8.00% $1,013,183  10.00%
Tier 1 capital to risk-weighted assets 1,236,687  12.21% 607,910  6.00% 607,910  6.00%
Tier 1 leverage capital to average assets 1,236,687  10.70% 462,227  4.00% n/a  n/a 
Common equity tier 1 capital to risk-weighted assets 1,100,687  10.86% 455,932  4.50% n/a  n/a 
Banner Bank:            
Total capital to risk-weighted assets 1,248,269  12.56% 795,040  8.00% 993,800  10.00%
Tier 1 capital to risk-weighted assets 1,150,328  11.58% 596,280  6.00% 795,040  8.00%
Tier 1 leverage capital to average assets 1,150,328  10.21% 450,496  4.00% 563,120  5.00%
Common equity tier 1 capital to risk-weighted assets 1,150,328  11.58% 447,210  4.50% 645,970  6.50%
Islanders Bank:            
Total capital to risk-weighted assets 36,470  18.97% 15,379  8.00% 19,223  10.00%
Tier 1 capital to risk-weighted assets 34,066  17.72% 11,534  6.00% 15,379  8.00%
Tier 1 leverage capital to average assets 34,066  11.68% 11,662  4.00% 14,577  5.00%
Common equity tier 1 capital to risk-weighted assets 34,066  17.72% 8,651  4.50% 12,495  6.50%


            
ADDITIONAL FINANCIAL INFORMATION           
(dollars in thousands)           
(rates / ratios annualized)           
            
ANALYSIS OF NET INTEREST SPREADQuarters Ended
 September 30, 2019 June 30, 2019 September 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$154,529 $1,607 4.13% $47,663 $567 4.77% $72,249 $895 4.91%
Mortgage loans6,872,426 89,948 5.19% 6,800,802 89,682 5.29% 6,117,299 81,130 5.26%
Commercial/agricultural loans1,809,397 23,750 5.21% 1,769,603 23,924 5.42% 1,511,077 20,545 5.39%
Consumer and other loans173,342 2,791 6.39% 179,693 2,834 6.33% 141,503 2,298 6.44%
Total loans(1)9,009,694 118,096 5.20% 8,797,761 117,007 5.33% 7,842,128 104,868 5.31%
Mortgage-backed securities1,358,448 9,415 2.75% 1,354,048 9,794 2.90% 1,266,862 8,915 2.79%
Other securities414,994 3,058 2.92% 448,721 3,310 2.96% 462,048 3,279 2.82%
Interest-bearing deposits with banks82,836 489 2.34% 53,955 340 2.53% 65,191 332 2.02%
FHLB stock29,400 378 5.10% 30,902 387 5.02% 20,345 254 4.95%
Total investment securities1,885,678 13,340 2.81% 1,887,626 13,831 2.94% 1,814,446 12,780 2.79%
Total interest-earning assets10,895,372 131,436 4.79% 10,685,387 130,838 4.91% 9,656,574 117,648 4.83%
Non-interest-earning assets1,078,621    1,048,811    799,083   
Total assets$11,973,993    $11,734,198    $10,455,657   
Deposits:           
Interest-bearing checking accounts$1,194,633 621 0.21% $1,177,534 564 0.19% $1,006,010 270 0.11%
Savings accounts1,854,967 2,244 0.48% 1,851,913 2,119 0.46% 1,631,158 1,002 0.24%
Money market accounts1,542,264 2,944 0.76% 1,497,717 2,656 0.71% 1,381,943 1,011 0.29%
Certificates of deposit1,155,710 4,205 1.44% 1,105,844 3,684 1.34% 1,153,403 3,234 1.11%
Total interest-bearing deposits5,747,574 10,014 0.69% 5,633,008 9,023 0.64% 5,172,514 5,517 0.42%
Non-interest-bearing deposits3,786,143  % 3,652,096  % 3,424,587  %
Total deposits9,533,717 10,014 0.42% 9,285,104 9,023 0.39% 8,597,101 5,517 0.25%
Other interest-bearing liabilities:           
FHLB advances476,435 3,107 2.59% 514,703 3,370 2.63% 249,896 1,388 2.20%
Other borrowings122,035 82 0.27% 122,455 67 0.22% 110,868 60 0.21%
Junior subordinated debentures140,212 1,612 4.56% 140,212 1,683 4.81% 140,212 1,605 4.54%
Total borrowings738,682 4,801 2.58% 777,370 5,120 2.64% 500,976 3,053 2.42%
Total funding liabilities10,272,399 14,815 0.57% 10,062,474 14,143 0.56% 9,098,077 8,570 0.37%
Other non-interest-bearing liabilities(2)163,809    151,436    85,485   
Total liabilities10,436,208    10,213,910    9,183,562   
Shareholders' equity1,537,785    1,520,288    1,272,095   
Total liabilities and shareholders' equity$11,973,993    $11,734,198    $10,455,657   
Net interest income/rate spread $116,621 4.22%  $116,695 4.35%  $109,078 4.46%
Net interest margin  4.25%   4.38%   4.48%
Additional Key Financial Ratios:           
Return on average assets  1.31%   1.36%   1.43%
Return on average equity  10.21%   10.47%   11.78%
Average equity/average assets  12.84%   12.96%   12.17%
Average interest-earning assets/average interest-bearing liabilities  167.98%   166.69%   170.21%
Average interest-earning assets/average funding liabilities  106.06%   106.19%   106.14%
Non-interest income/average assets  0.69%   0.78%   0.77%
Non-interest expense/average assets  2.89%   2.96%   3.10%
Efficiency ratio(4)  63.50%   62.22%   63.04%
Adjusted efficiency ratio(5)  60.71%   59.56%   60.21%
 
(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 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 SPREADNine Months Ended
 September 30, 2019 September 30, 2018
 Average BalanceInterest and DividendsYield/Cost(3) Average BalanceInterest and DividendsYield/Cost(3)
Interest-earning assets:       
Held for sale loans$100,273 $3,295 4.39% $81,244 $2,871 4.72%
Mortgage loans6,835,861 268,232 5.25% 6,058,535 231,703 5.11%
Commercial/agricultural loans1,761,222 70,486 5.35% 1,482,377 57,348 5.17%
Consumer and other loans178,792 8,545 6.39% 141,180 6,821 6.46%
Total loans(1)8,876,148 350,558 5.28% 7,763,336 298,743 5.14%
Mortgage-backed securities1,368,081 29,716 2.90% 1,196,282 25,145 2.81%
Other securities449,030 9,847 2.93% 466,313 9,699 2.78%
Interest-bearing deposits with banks60,655 1,118 2.46% 60,532 775 1.71%
FHLB stock30,679 1,031 4.49% 19,722 529 3.59%
Total investment securities1,908,445 41,712 2.92% 1,742,849 36,148 2.77%
Total interest-earning assets10,784,593 392,270 4.86% 9,506,185 334,891 4.71%
Non-interest-earning assets1,053,180    802,915   
Total assets$11,837,773    $10,309,100   
Deposits:       
Interest-bearing checking accounts$1,175,521 1,660 0.19% $1,020,457 797 0.10%
Savings accounts1,853,671 6,283 0.45% 1,627,297 2,440 0.20%
Money market accounts1,510,293 7,851 0.70% 1,414,513 2,469 0.23%
Certificates of deposit1,171,363 11,886 1.36% 1,073,861 7,433 0.93%
Total interest-bearing deposits5,710,848 27,680 0.65% 5,136,128 13,139 0.34%
Non-interest-bearing deposits3,682,047  % 3,344,312  %
Total deposits9,392,895 27,680 0.39% 8,480,440 13,139 0.21%
Other interest-bearing liabilities:       
FHLB advances508,247 9,953 2.62% 234,323 3,564 2.03%
Other borrowings120,847 209 0.23% 105,700 179 0.23%
Junior subordinated debentures140,212 5,008 4.78% 140,212 4,495 4.29%
Total borrowings769,306 15,170 2.64% 480,235 8,238 2.29%
Total funding liabilities10,162,201 42,850 0.56% 8,960,675 21,377 0.32%
Other non-interest-bearing liabilities(2)155,771    75,821   
Total liabilities10,317,972    9,036,496   
Shareholders' equity1,519,801    1,272,604   
Total liabilities and shareholders' equity$11,837,773    $10,309,100   
Net interest income/rate spread $349,420 4.30%  $313,514 4.39%
Net interest margin  4.33%   4.41%
Additional Key Financial Ratios:       
Return on average assets  1.27%   1.28%
Return on average equity  9.91%   10.40%
Average equity/average assets  12.84%   12.34%
Average interest-earning assets/average interest-bearing liabilities  166.42%   169.26%
Average interest-earning assets/average funding liabilities  106.12%   106.09%
Non-interest income/average assets  0.70%   0.82%
Non-interest expense/average assets  2.98%   3.19%
Efficiency ratio(4)  64.23%   65.33%
Adjusted efficiency ratio(5)  61.17%   63.79%
 
(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 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:
          
ADJUSTED REVENUEQuarters Ended Nine Months Ended
 Sep 30, 2019 Jun 30, 2019 Sep 30, 2018 Sep 30, 2019 Sep 30, 2018
Net interest income before provision for loan losses$116,621  $116,695  $109,078  $349,420  $313,514 
Total non-interest income20,866  22,676  20,411  61,667  62,990 
Total GAAP revenue137,487  139,371  129,489  411,087  376,504 
Exclude net loss (gain) on sale of securities2  28    29  (48)
Exclude net change in valuation of financial instruments carried at fair value69  114  (45) 172  (3,577)
Adjusted revenue (non-GAAP)$137,558  $139,513  $129,444  $411,288  $372,879 


     
ADJUSTED EARNINGS Quarters Ended Nine Months Ended
  Sep 30, 2019 Jun 30, 2019 Sep 30, 2018 Sep 30, 2019 Sep 30, 2018
Net income (GAAP) $39,577  $39,700  $37,773  $112,623  $98,987 
Exclude net loss (gain) on sale of securities 2  28    29  (48)
Exclude net change in valuation of financial instruments carried at fair value 69  114  (45) 172  (3,577)
Exclude acquisition-related expenses 676  301  1,005  3,125  1,005 
Exclude related tax (benefit) expense (179) (106) (126) (798) 733 
Total adjusted earnings (non-GAAP) $40,145  $40,037  $38,607  $115,151  $97,100 
           
Diluted earnings per share (GAAP) $1.15  $1.14  $1.17  $3.23  $