Press Release

Banner Corporation Reports Record 2019 Net Income,

Company Release - 1/23/2020 4:00 PM ET

Highlights in Fourth Quarter of 2019 included

Strong Organic Loan and Core Deposit Growth and Completion of AltaPacific Bancorp Acquisition

WALLA WALLA, Wash., Jan. 23, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported record 2019 net income, which increased 7% to $146.3 million, or $4.18 per diluted share, compared to $136.5 million, or $4.15 per diluted share, in 2018.  In the fourth quarter of 2019, net income totaled $33.7 million, or $0.95 per diluted share, compared to $39.6 million, or $1.15 per diluted share, in the preceding quarter and $37.5 million, or $1.09 per diluted share, in the fourth quarter of 2018.  Fourth quarter of 2019 results include $4.4 million of acquisition-related expenses, compared to $676,000 of acquisition-related expenses in the preceding quarter and $4.6 million in the fourth quarter of 2018.  The 2019 results include $7.5 million of acquisition-related expenses compared to $5.6 million of acquisition-related expenses for 2018.

“Banner’s record 2019 operating results reflect the continued execution of our super community bank strategy.  We are generating new client relationships and adding to our core funding position by growing core deposits while maintaining a moderate risk profile,” stated Mark J. Grescovich, President and Chief Executive Officer.  “During the fourth quarter, we announced the completion of the merger with AltaPacific Bancorp.  This combination is a complementary fit, both strategically and culturally, and provides scale to our California franchise with attractive core deposits and strong commercial banking relationships.”

At December 31, 2019, Banner Corporation had $12.61 billion in assets, $9.21 billion in net loans and $10.05 billion in deposits.  Banner operates 178 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Fourth Quarter 2019 Highlights

  • Revenues increased 2% to $139.8 million, compared to $137.5 million in the preceding quarter and increased nominally compared to $138.5 million in the fourth quarter a year ago.
  • Net interest income, before the provision for loan losses, was $119.5 million, compared to $116.6 million in the preceding quarter and $117.5 million in the fourth quarter a year ago.
  • Net interest margin was 4.20%, compared to 4.25% in the preceding quarter and 4.47% in the fourth quarter a year ago.
  • Mortgage banking revenues were $6.2 million, compared to $6.6 million in the preceding quarter and increased 4% compared to $6.0 million in the fourth quarter a year ago.
  • Return on average assets was 1.07% compared to 1.31% in the preceding quarter and 1.32% in the fourth quarter a year ago.
  • Net loans receivable increased 5% to $9.20 billion at December 31, 2019, compared to $8.74 billion at September 30, 2019, and increased 7% when compared to $8.59 billion at December 31, 2018.
  • Non-performing assets increased to $40.5 million, or 0.32% of total assets, at December 31, 2019, compared to $18.6 million, or 0.15% of total assets in the preceding quarter, and $18.9 million, or 0.16% of total assets, at December 31, 2018.
  • Provision for loan losses was $4.0 million, and the allowance for loan losses was $100.6 million, or 1.08% of total loans receivable, as of December 31, 2019.
  • Core deposits increased 5% to $8.93 billion at December 31, 2019, compared to $8.51 billion at September 30, 2019 and increased 10% compared to $8.16 billion a year ago.  Core deposits represented 89% of total deposits at December 31, 2019.
  • Dividends to shareholders were $1.41 per share in the quarter ended December 31, 2019, including a $0.41 regular quarterly dividend and a $1.00 special cash dividend.
  • Common shareholders’ equity per share decreased slightly to $44.59 at December 31, 2019, compared to $44.80 at the preceding quarter end and increased 6% from $42.03 a year ago.
  • Tangible common shareholders' equity per share* decreased 2% to $33.33 at December 31, 2019, compared to $34.10 at the preceding quarter end and increased 6% from $31.45 a year ago.

*Tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to 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), FHLB prepayment penalties 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 November 1, 2019, Banner completed the acquisition of AltaPacific Bancorp (“AltaPacific”) and its wholly-owned subsidiary, AltaPacific Bank, of Santa Rosa, California.  At closing AltaPacific Bank had six branch locations, including one in Northern California, and five in Southern California.  Pursuant to the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.

The AltaPacific merger was accounted for using the acquisition method of accounting.  Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date.  The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill.  The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date.  The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date.  The acquisition provided $426.6 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner.

Adoption of New Accounting Standard

In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13).  Currently GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred.  The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  ASU 2016-13 became effective for Banner on January 1, 2020.  Banner is in the process of finalizing the adoption of ASU 2016-13.

Based on the initial December 31, 2019 model results Banner estimates the adoption of ASU No. 2016-13 will result in a combined increase to its Allowance for Credit Loss and Reserve for Unfunded Commitments of 10% to 20%.  The increase will be recorded as an adjustment to equity as of the adoption date.

Income Statement Review

Banner's net interest margin was 4.20% for the fourth quarter of 2019, a five basis-point decrease compared to 4.25% in the preceding quarter and a 27 basis-point decrease compared to 4.47% in the fourth quarter a year ago.  The decrease in net interest margin during the quarter primarily reflects lower yields on average interest-earning assets largely as a result of three 25 basis point decreases by the Federal Reserve in the targeted Fed Funds Rate in the third and fourth quarter coupled with a longer-term decline in the 10-year treasury yield.  Acquisition accounting adjustments added eight basis points to the net interest margin in the current quarter compared to six basis points in the preceding quarter and 12 basis points in the fourth quarter a year ago.  The total purchase discount for acquired loans was $25.0 million at December 31, 2019, compared to $21.3 million at September 30, 2019, and $25.7 million at December 31, 2018.  For the year ended December 31, 2019, Banner’s net interest margin was 4.30% compared to 4.43% in 2018.

Average interest-earning asset yields decreased ten basis points to 4.69% compared to 4.79% for the preceding quarter and decreased 21 basis points compared to 4.90% in the fourth quarter a year ago.  Average loan yields decreased seven basis points to 5.13% compared to 5.20% in the preceding quarter and decreased 24 basis points compared to 5.37% in the fourth quarter a year ago.  Loan discount accretion added 11 basis points to loan yields in the fourth quarter of 2019, compared to seven basis points in the preceding quarter, and 16 basis points in the fourth quarter a year ago.  Deposit costs were 0.40% in the fourth quarter of 2019, a two basis-point decrease compared to the preceding quarter and an eight basis-point increase compared to the fourth quarter a year ago.  The decrease in deposit costs during the current quarter compared to the preceding quarter are the result of recent decreases in market interest rates; however, changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates.  The total cost of funds was 0.52% during the fourth quarter of 2019, a five basis-point decrease compared to the preceding quarter and a six basis-point increase compared to the fourth quarter a year ago.

Banner recorded a $4.0 million provision for loan losses in the current quarter, compared to $2.0 million in the prior quarter and $2.5 million in the same quarter a year ago.  The provision is primarily a result of new loan originations, the increase in non-performing loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs.

Total non-interest income was $20.3 million in the fourth quarter of 2019, compared to $20.9 million in the third quarter of 2019 and $21.0 million in the fourth quarter a year ago.  Deposit fees and other service charges were $9.6 million in the fourth quarter of 2019, compared to $10.3 million in the preceding quarter and $12.5 million in the fourth quarter a year ago.  The decrease in deposit fees and other service charges from the fourth quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, which reduced interchange fee income by approximately $7 million during the second half of 2019.  Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, were $6.2 million in the fourth quarter, compared to $6.6 million in the preceding quarter and $6.0 million in the fourth quarter of 2018.  The higher mortgage banking revenue year-over-year reflected an increase in residential 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 both the fourth quarter of 2019 and in the prior quarter, compared to 78% in the fourth quarter of 2018.  For the year, total non-interest income was $81.9 million, compared to $84.0 million in 2018.

Banner’s fourth quarter 2019 results included a $36,000 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 $62,000 net gain on the sale of securities.  In the preceding quarter, results included a $69,000 net loss for fair value adjustments and a $2,000 net loss on the sale of securities.  In the fourth quarter a year ago, results included a $198,000 net gain for fair value adjustments and a $885,000 net loss on the sale of securities.

Total revenue increased 2% to $139.8 million for the fourth quarter of 2019, compared to $137.5 million in the preceding quarter and increased nominally compared to $138.5 million in the fourth quarter a year ago.  For the year, total revenue increased 7% to $550.9 million compared to $515.0 million in 2018.  Adjusted revenue* (the total of net interest income before provision for loan losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $139.7 million in the fourth quarter of 2019, compared to $137.6 million in the preceding quarter and $139.2 million in the fourth quarter of 2018.  For the year, adjusted revenue* was $551.0 million, compared to $512.0 million in 2018.

Banner’s total non-interest expense was $93.7 million in the fourth quarter of 2019, compared to $87.3 million in the preceding quarter and $95.4 million in the fourth quarter of 2018.  Acquisition-related expenses were $4.4 million for the fourth quarter of 2019, compared to $676,000 for the preceding quarter, and $4.6 million in the fourth quarter of 2018.  The fourth quarter of 2019 non-interest expenses include two months of expenses associated with the operations acquired in the AltaPacific acquisition.  In addition, the fourth quarter of 2019 miscellaneous non-interest expense included $735,000 of expense related to the prepayment of $150 million of FHLB advances.  For the year, total non-interest expense was $357.7 million, compared to $341.4 million in 2018.  Banner’s efficiency ratio was 67.03% for the current quarter, compared to 63.50% in the preceding quarter and 68.89% in the year ago quarter.  Banner’s adjusted efficiency ratio* was 61.19% for the current quarter, compared to 60.71% in the preceding quarter and 63.06% in the year ago quarter.

For the fourth quarter of 2019, Banner had $8.4 million in state and federal income tax expense for an effective tax rate of 20.0%, reflecting the benefits from tax exempt income.  Banner’s statutory income tax rate is 23.5%, 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 4% to $12.60 billion at December 31, 2019, compared to $12.10 billion at September 30, 2019, and increased 6% when compared to $11.87 billion at December 31, 2018.  The total of securities and interest-bearing deposits held at other banks was $1.89 billion at December 31, 2019, compared to $1.87 billion at September 30, 2019 and $1.94 billion at December 31, 2018.  The average effective duration of Banner's securities portfolio was approximately 3.5 years at both December 31, 2019 and December 31, 2018.

Net loans receivable increased 5% to $9.20 billion at December 31, 2019, compared to $8.74 billion at September 30, 2019, and increased 7% when compared to $8.59 billion at December 31, 2018.  The year-over-year increase in net loans included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019.  Commercial real estate and multifamily real estate loans increased 9% to $4.36 billion at December 31, 2019, compared to $4.01 billion at September 30, 2019, and increased 11% compared to $3.93 billion a year ago.  Commercial business loans increased 5% to $1.69 billion at December 31, 2019, compared to $1.62 billion at September 30, 2019, and increased 14% compared to $1.48 billion a year ago.  Agricultural business loans decreased to $370.5 million at December 31, 2019, compared to $390.5 million three months earlier and $404.9 million a year ago.  Total construction, land and land development loans were $1.17 billion at December 31, 2019, an 8% increase from $1.08 billion at September 30, 2019, and a 6% increase compared to $1.11 billion a year earlier.  Consumer loans decreased to $762.8 million at December 31, 2019, compared to $779.6 million at September 30, 2019, and $785.0 million a year ago.  One- to four-family loans decreased modestly to $945.6 million at December 31, 2019, compared to $947.5 million at September 30, 2019, and $973.6 million a year ago.

Loans held for sale were $210.4 million at December 31, 2019, compared to $244.9 million at September 30, 2019, and $171.0 million at December 31, 2018.  The volume of one- to four- family residential mortgage loans sold was $268.1 million in the current quarter, compared to $204.6 million in the preceding quarter and $130.1 million in the fourth quarter a year ago.  During the fourth quarter of 2019, Banner sold $103.4 million in multifamily loans.  Banner sold $79.4 million in multifamily loans in the preceding quarter and sold $26.8 million in the fourth quarter a year ago.

Total deposits increased 3% to $10.05 billion at December 31, 2019, compared to $9.73 billion at September 30, 2019, and increased 6% when compared to $9.48 billion a year ago.  The increase in deposits included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019.  Non-interest-bearing account balances increased 2% to $3.95 billion at December 31, 2019, compared to $3.89 billion at September 30, 2019, and increased 8% compared to $3.66 billion a year ago.  Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 5% from the prior quarter and increased 9% compared to a year ago.  Core deposits represented 89% of total deposits at December 31, 2019, compared to 87% of total deposits at September 30, 2019, and 86% of total deposits a year earlier.  Certificates of deposit decreased 8% to $1.12 billion at December 31, 2019, compared to $1.22 billion at September 30, 2019, and decreased 15% compared to $1.32 billion a year earlier.  The decrease in certificates of deposit primarily reflects the decrease in brokered deposits to $202.9 million at December 31, 2019, compared to $299.5 million at September 30, 2019 and $377.3 million a year ago.  FHLB borrowings totaled $450.0 million at December 31, 2019 compared to $382.0 million at September 30, 2019 and $540.2 million a year earlier.

At December 31, 2019, total common shareholders' equity was $1.59 billion, or 12.65% of assets, compared to $1.53 billion or 12.65% of assets at September 30, 2019, and $1.48 billion or 12.46% of assets a year ago.  At December 31, 2019, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.19 billion, or 9.77% of tangible assets*, compared to $1.17 billion, or 9.93% of tangible assets, at September 30, 2019, and $1.11 billion, or 9.62% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $33.33 at December 31, 2019, compared to $31.45 per share a year ago.

Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.”   At December 31, 2019, Banner's common equity Tier 1 capital ratio was 10.63%, its Tier 1 leverage capital to average assets ratio was 10.71%, and its total capital to risk-weighted assets ratio was 12.93%.

Credit Quality

The allowance for loan losses was $100.6 million at December 31, 2019, or 1.08% of total loans receivable outstanding and 254% of non-performing loans compared to $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans, and $96.5 million at December 31, 2018, or 1.11% of total loans receivable outstanding and 616% of non-performing loans.  Net loan charge-offs totaled $1.2 million in the fourth quarter, compared to net loan charge-offs of $2.5 million in the preceding quarter and net loan charge-offs of $1.3 million in the fourth quarter a year ago.  Banner recorded a $4.0 million provision for loan losses in the current quarter primarily as a result of the origination of new loans, the increase in non-performing loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, compared to $2.0 million in the prior quarter and $2.5 million in the year ago quarter.  Non-performing loans were $39.6 million at December 31, 2019, compared to $18.3 million at September 30, 2019, and $15.7 million a year ago.  The increase in non-performing loans during the quarter was largely due to one commercial banking relationship moving to nonaccrual.  Real estate owned and other repossessed assets were $936,000 at December 31, 2019, compared to $343,000 at September 30, 2019, and $3.2 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses.  Credit discounts are included in the determination of fair value, and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.  At December 31, 2019, the total purchase discount for acquired loans was $25.0 million.

Banner's total non-performing assets were $40.5 million, or 0.32% of total assets, at December 31, 2019, compared to $18.6 million, or 0.15% of total assets, at September 30, 2019, and $18.9 million, or 0.16% of total assets, a year ago.  In addition to non-performing assets, there were $15.9 million of purchased credit-impaired loans at December 31, 2019, compared to $12.6 million at September 30, 2019 and $14.4 million at December 31, 2018.

Conference Call

Banner will host a conference call on Friday, January 24, 2020, at 8:00 a.m. PST, to discuss its fourth 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 10137616, or at www.bannerbank.com.

About the Company

Banner Corporation is a $12.61 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 AltaPacific 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 Twelve Months Ended
(in thousands except shares and per share data) Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
           
INTEREST INCOME:          
Loans receivable $120,915  $118,096  $114,627  $471,473  $413,370 
Mortgage-backed securities 8,924  9,415  9,931  38,640  35,076 
Securities and cash equivalents 3,570  3,925  4,183  15,566  15,186 
  133,409  131,436  128,741  525,679  463,632 
INTEREST EXPENSE:          
Deposits 9,950  10,014  7,503  37,630  20,642 
Federal Home Loan Bank advances 2,281  3,107  2,072  12,234  5,636 
Other borrowings 121  82  66  330  245 
Junior subordinated debentures 1,566  1,612  1,641  6,574  6,136 
  13,918  14,815  11,282  56,768  32,659 
Net interest income before provision for loan losses 119,491  116,621  117,459  468,911  430,973 
PROVISION FOR LOAN LOSSES 4,000  2,000  2,500  10,000  8,500 
Net interest income 115,491  114,621  114,959  458,911  422,473 
NON-INTEREST INCOME:          
Deposit fees and other service charges 9,637  10,331  12,539  46,632  48,074 
Mortgage banking operations 6,248  6,616  6,019  22,215  21,343 
Bank-owned life insurance 1,170  1,076  994  4,645  4,505 
Miscellaneous 3,201  2,914  2,153  8,632  7,148 
  20,256  20,937  21,705  82,124  81,070 
Net gain (loss) on sale of securities 62  (2) (885) 33  (837)
Net change in valuation of financial instruments carried at fair value (36) (69) 198  (208) 3,775 
Total non-interest income 20,282  20,866  21,018  81,949  84,008 
NON-INTEREST EXPENSE:          
Salary and employee benefits 57,050  59,090  52,122  226,409  202,613 
Less capitalized loan origination costs (8,797) (7,889) (4,863) (28,934) (17,925)
Occupancy and equipment 13,377  12,566  13,490  52,390  49,215 
Information / computer data services 6,202  5,657  5,112  22,458  18,823 
Payment and card processing services 4,638  4,330  4,233  16,993  15,412 
Professional and legal expenses 2,262  2,704  6,669  9,736  17,945 
Advertising and marketing 2,021  2,221  2,588  7,836  8,346 
Deposit insurance expense (benefit) 1,608  (1,604) 1,093  2,840  4,446 
State/municipal business and use taxes 917  1,011  854  3,880  3,284 
Real estate operations 40  126  251  303  804 
Amortization of core deposit intangibles 2,061  1,985  1,935  8,151  6,047 
Miscellaneous 7,892  6,435  7,310  28,122  26,754 
  89,271  86,632  90,794  350,184  335,764 
Acquisition-related expenses 4,419  676  4,602  7,544  5,607 
Total non-interest expense 93,690  87,308  95,396  357,728  341,371 
Income before provision for income taxes 42,083  48,179  40,581  183,132  165,110 
PROVISION FOR INCOME TAXES 8,428  8,602  3,053  36,854  28,595 
NET INCOME $33,655  $39,577  $37,528  $146,278  $136,515 
Earnings per share available to common shareholders:          
Basic $0.96  $1.15  $1.10  $4.20  $4.16 
Diluted $0.95  $1.15  $1.09  $4.18  $4.15 
Cumulative dividends declared per common share $1.41  $0.41  $0.38  $2.64  $1.96 
Weighted average common shares outstanding:          
Basic 35,188,399  34,407,462  34,221,048  34,868,434  32,784,724 
Diluted 35,316,736  34,497,994  34,342,641  34,967,684  32,894,425 
Increase (decrease) in common shares outstanding 1,578,219  (400,286) 2,780,015  568,804  2,456,287 
                


FINANCIAL CONDITION       Percentage Change
(in thousands except shares and per share data) Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Prior
Qtr
 Prior Yr
Qtr
           
ASSETS          
Cash and due from banks $234,359  $250,671  $231,029  (6.5)% 1.4%
Interest-bearing deposits 73,376  73,785  41,167  (0.6)% 78.2%
Total cash and cash equivalents 307,735  324,456  272,196  (5.2)% 13.1%
Securities - trading 25,636  25,672  25,896  (0.1)% (1.0)%
Securities - available for sale 1,551,557  1,539,908  1,636,223  0.8% (5.2)%
Securities - held to maturity 236,094  230,056  234,220  2.6% 0.8%
Total securities 1,813,287  1,795,636  1,896,339  1.0% (4.4)%
Federal Home Loan Bank stock 28,342  25,623  31,955  10.6% (11.3)%
Loans held for sale 210,447  244,889  171,031  (14.1)% 23.0%
Loans receivable 9,305,357  8,835,368  8,684,595  5.3% 7.1%
Allowance for loan losses (100,559) (97,801) (96,485) 2.8% 4.2%
Net loans receivable 9,204,798  8,737,567  8,588,110  5.3% 7.2%
Accrued interest receivable 37,962  40,033  38,593  (5.2)% (1.6)%
Real estate owned held for sale, net 814  228  2,611  257.0% (68.8)%
Property and equipment, net 178,008  171,279  171,809  3.9% 3.6%
Goodwill 373,121  339,154  339,154  10.0% 10.0%
Other intangibles, net 29,158  26,610  32,924  9.6% (11.4)%
Bank-owned life insurance 192,088  179,076  177,467  7.3% 8.2%
Other assets 228,271  213,291  149,128  7.0% 53.1%
Total assets $12,604,031  $12,097,842  $11,871,317  4.2% 6.2%
LIABILITIES          
Deposits:          
Non-interest-bearing $3,945,000  $3,885,210  $3,657,817  1.5% 7.9%
Interest-bearing transaction and savings accounts 4,983,238  4,624,970  4,498,966  7.7% 10.8%
Interest-bearing certificates 1,120,403  1,218,591  1,320,265  (8.1)% (15.1)%
Total deposits 10,048,641  9,728,771  9,477,048  3.3% 6.0%
Advances from Federal Home Loan Bank 450,000  382,000  540,189  17.8% (16.7)%
Customer repurchase agreements and other borrowings 118,474  120,014  118,995  (1.3)% (0.4)%
Junior subordinated debentures at fair value 119,304  113,417  114,091  5.2% 4.6%
Accrued expenses and other liabilities 227,889  181,351  102,061  25.7% 123.3%
Deferred compensation 45,689  41,354  40,338  10.5% 13.3%
Total liabilities 11,009,997  10,566,907  10,392,722  4.2% 5.9%
SHAREHOLDERS' EQUITY          
Common stock 1,373,940  1,286,711  1,337,436  6.8% 2.7%
Retained earnings 186,838  203,704  134,055  (8.3)% 39.4%
Other components of shareholders' equity 33,256  40,520  7,104  (17.9)% nm 
Total shareholders' equity 1,594,034  1,530,935  1,478,595  4.1% 7.8%
Total liabilities and shareholders' equity $12,604,031  $12,097,842  $11,871,317  4.2% 6.2%
Common Shares Issued:          
Shares outstanding at end of period 35,751,576  34,173,357  35,182,772     
Common shareholders' equity per share (1) $44.59  $44.80  $42.03     
Common shareholders' tangible equity per share (1) (2) $33.33  $34.10  $31.45     
Common shareholders' tangible equity to tangible assets (2) 9.77% 9.93% 9.62%    
Consolidated Tier 1 leverage capital ratio 10.71% 10.70% 10.98%    


(1Calculation 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 Dec 31,
2019
 Sep 30,
2019
 Dec 31,
2018
 Prior
Qtr
 Prior
Yr Qtr
           
Commercial real estate:          
Owner occupied $1,580,650  $1,463,303  $1,430,097  8.0% 10.5%
Investment properties 2,309,221  2,150,938  2,131,059  7.4% 8.4%
Multifamily real estate 473,152  399,814  368,836  18.3% 28.3%
Commercial construction 210,668  190,532  172,410  10.6% 22.2%
Multifamily construction 233,610  214,878  184,630  8.7% 26.5%
One- to four-family construction 544,308  488,945  534,678  11.3% 1.8%
Land and land development:          
Residential 154,688  163,829  188,508  (5.6)% (17.9)%
Commercial 26,290  26,119  27,278  0.7% (3.6)%
Commercial business 1,693,824  1,619,391  1,483,614  4.6% 14.2%
Agricultural business including secured by farmland 370,549  390,505  404,873  (5.1)% (8.5)%
One- to four-family real estate 945,622  947,475  973,616  (0.2)% (2.9)%
Consumer:          
Consumer secured by one- to four-family real estate 550,960  566,792  568,979  (2.8)% (3.2)%
Consumer-other 211,815  212,847  216,017  (0.5)% (1.9)%
Total loans receivable $9,305,357  $8,835,368  $8,684,595  5.3% 7.1%
Restructured loans performing under their restructured terms $6,466  $6,721  $13,422     
Loans 30 - 89 days past due and on accrual (1) $20,178  $11,496  $25,108     
Total delinquent loans (including loans on non-accrual), net (2) $38,322  $26,830  $38,721     
Total delinquent loans / Total loans receivable 0.41% 0.30% 0.45%    

(1) Includes $2.5 million of purchased credit-impaired loans at December 31, 2019 compared to $112,000 at September 30, 2019 and $3,000 at December 31, 2018.
(2) Delinquent loans include $2.8 million of delinquent purchased credit-impaired loans at December 31, 2019 compared to $412,000 at September 30, 2019 and $519,000 at December 31, 2018.

 
LOANS BY GEOGRAPHIC LOCATION         Percentage Change
  Dec 31, 2019 Sep 30,
2019
 Dec 31,
2018
 Prior
Qtr
 Prior
Yr Qtr
  Amount Percentage Amount Amount    
             
Washington $4,364,764  46.9% $4,313,972  $4,324,588  1.2% 0.9%
Oregon 1,650,704  17.7% 1,615,192  1,636,152  2.2% 0.9%
California 2,129,789  22.9% 1,729,208  1,596,604  23.2% 33.4%
Idaho 530,016  5.7% 552,523  521,026  (4.1)% 1.7%
Utah 60,958  0.7% 62,197  57,318  (2.0)% 6.4%
Other 569,126  6.1% 562,276  548,907  1.2% 3.7%
Total loans receivable $9,305,357  100.0% $8,835,368  $8,684,595  5.3% 7.1%
 

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

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

LOAN ORIGINATIONSQuarters Ended Twelve Months Ended
 Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
Commercial real estate$190,584  $114,528  $172,885  $480,669  $536,784 
Multifamily real estate21,848  29,645  16,731  80,761  25,771 
Construction and land530,632  303,151  397,702  1,435,501  1,460,536 
Commercial business196,069  194,606  206,922  757,721  839,290 
Agricultural business27,926  12,363  18,901  93,050  123,702 
One-to four-family residential31,564  27,734  81,522  117,297  177,332 
Consumer71,683  101,613  72,500  357,040  331,661 
Total loan originations (excluding loans held for sale)$1,070,306  $783,640  $967,163  $3,322,039  $3,495,076 


           
ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
    Quarters Ended Twelve Months Ended
CHANGE IN THE Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
ALLOWANCE FOR LOAN LOSSES          
Balance, beginning of period $97,801  $98,254  $95,263  $96,485  $89,028 
Provision for loan losses 4,000  2,000  2,500  10,000  8,500 
Recoveries of loans previously charged off:          
Commercial real estate 199  107  66  476  1,646 
Construction and land   156  23  208  213 
One- to four-family real estate 159  129  18  561  750 
Commercial business 225  162  193  625  1,049 
Agricultural business, including secured by farmland 10  2  23  47  64 
Consumer 61  154  102  548  366 
  654  710  425  2,465  4,088 
Loans charged off:          
Commercial real estate   (314)   (1,138) (401)
Construction and land (45)     (45) (479)
One- to four-family real estate   (86)   (86) (43)
Commercial business (1,180) (1,599) (684) (4,171) (2,051)
Agricultural business, including secured by farmland (4) (741) (415) (911) (756)
Consumer (667) (423) (604) (2,040) (1,401)
  (1,896) (3,163) (1,703) (8,391) (5,131)
Net charge-offs (1,242) (2,453) (1,278) (5,926) (1,043)
Balance, end of period $100,559  $97,801  $96,485  $100,559  $96,485 
Net charge-offs / Average loans receivable (0.013)% (0.027)% (0.015)% (0.066)% (0.013)%


       
ALLOCATION OF      
ALLOWANCE FOR LOAN LOSSES Dec 31, 2019 Sep 30, 2019 Dec 31, 2018
Specific or allocated loss allowance:      
Commercial real estate $30,591  $28,515  $27,132 
Multifamily real estate 4,754  4,283  3,818 
Construction and land 22,994  22,569  24,442 
One- to four-family real estate 4,136  4,569  4,714 
Commercial business 23,370  21,147  19,438 
Agricultural business, including secured by farmland 4,120  3,895  3,778 
Consumer 8,202  8,441  7,972 
Total allocated 98,167  93,419  91,294 
Unallocated 2,392  4,382  5,191 
     Total allowance for loan losses $100,559  $97,801  $96,485 
Allowance for loan losses / Total loans receivable 1.08% 1.11% 1.11%
Allowance for loan losses / Non-performing loans 254% 536% 616%


      
ADDITIONAL FINANCIAL INFORMATION     
(dollars in thousands)     
 Dec 31, 2019 Sep 30, 2019 Dec 31, 2018
NON-PERFORMING ASSETS     
Loans on non-accrual status:     
Secured by real estate:     
Commercial$5,952  $5,092  $4,088 
Multifamily85  87   
Construction and land1,905  1,318  3,188 
One- to four-family3,410  3,007  1,544 
Commercial business23,015  3,035  2,936 
Agricultural business, including secured by farmland661  757  1,751 
Consumer2,473  2,473  1,241 
 37,501  15,769  14,748 
Loans more than 90 days delinquent, still on accrual:     
Secured by real estate:     
Commercial89  89   
Construction and land332  1,141   
One- to four-family877  652  658 
Commercial business401  358  1 
Consumer398  247  247 
 2,097  2,487  906 
Total non-performing loans39,598  18,256  15,654 
Real estate owned (REO)814  228  2,611 
Other repossessed assets122  115  592 
Total non-performing assets$40,534  $18,599  $18,857 
Total non-performing assets to total assets0.32% 0.15% 0.16%
Purchased credit-impaired loans, net$15,938  $12,575  $14,413 


    
 Quarters Ended Twelve Months Ended
REAL ESTATE OWNEDDec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
Balance, beginning of period$228  $2,513  $364  $2,611  $360 
Additions from loan foreclosures  48  139  109  641 
Additions from acquisitions650    2,593  650  2,593 
Proceeds from dispositions of REO(105) (2,333) (453) (2,588) (838)
Gain on sale of REO41    168  32  242 
Valuation adjustments in the period    (200)   (387)
Balance, end of period$814  $228  $2,611  $814  $2,611 


           
ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
           
DEPOSIT COMPOSITION       Percentage Change
  Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Prior Qtr Prior Yr
Qtr
           
Non-interest-bearing $3,945,000  $3,885,210  $3,657,817  1.5% 7.9%
Interest-bearing checking 1,280,003  1,209,826  1,191,016  5.8% 7.5%
Regular savings accounts 1,934,041  1,863,839  1,842,581  3.8% 5.0%
Money market accounts 1,769,194  1,551,305  1,465,369  14.0% 20.7%
Total interest-bearing transaction and savings accounts 4,983,238  4,624,970  4,498,966  7.7% 10.8%
Total core deposits 8,928,238  8,510,180  8,156,783  4.9% 9.5%
Interest-bearing certificates 1,120,403  1,218,591  1,320,265  (8.1)% (15.1)%
Total deposits $10,048,641  $9,728,771  $9,477,048  3.3% 6.0%


           
GEOGRAPHIC CONCENTRATION OF DEPOSITS         Percentage Change
  Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Prior Qtr Prior Yr
Qtr
  Amount Percentage Amount Amount    
Washington $5,861,809  58.3% $5,833,547  $5,674,328  0.5% 3.3%
Oregon 2,006,163  20.0% 1,990,155  1,891,145  0.8% 6.1%
California 1,698,289  16.9% 1,429,939  1,434,033  18.8% 18.4%
Idaho 482,380  4.8% 475,130  477,542  1.5% 1.0%
Total deposits $10,048,641  100.0% $9,728,771  $9,477,048  3.3% 6.0%


 
INCLUDED IN TOTAL DEPOSITS Dec 31, 2019 Sep 30, 2019 Dec 31, 2018
Public non-interest-bearing accounts $111,015  $114,879  $96,009 
Public interest-bearing transaction & savings accounts 133,403  119,729  121,392 
Public interest-bearing certificates 35,184  26,609  30,089 
Total public deposits $279,602  $261,217  $247,490 
Total brokered deposits $202,884  $299,496  $377,347 


ADDITIONAL FINANCIAL INFORMATION  
(in thousands)  
   
   
ACQUISITION OF ALTAPACIFIC BANCORP  
The following table* provides the estimated fair value of the assets acquired and liabilities assumed in the AltaPacific acquisition at November 1, 2019 (in thousands):  
 November 1, 2019
   
Cash paid $2,360 
Fair value of common shares issued 85,200 
Total consideration 87,560 
   
Fair value of assets acquired:  
Cash and cash equivalents39,686  
Securities20,348  
Federal Home Loan Bank stock2,005  
Loans receivable332,355  
Real estate owned held for sale650  
Property and equipment3,809  
Core deposit intangible4,610  
Bank-owned life insurance11,890  
Deferred tax asset166  
Other assets11,090  
Total assets acquired426,609  
   
Fair value of liabilities assumed:  
Deposits313,374  
Advances from FHLB40,226  
Junior subordinated debentures5,814  
Deferred compensation4,508  
Other liabilities9,094  
Total liabilities assumed373,016  
   
Net assets acquired 53,593 
   
     Goodwill $33,967 
   
* Amounts recorded in this table are preliminary estimates of fair value.  Additional adjustments to the acquisition accounting may be required with a measurement period of one-year from the acquisition date.


             
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 DECEMBER 31, 2019 Amount Ratio Amount Ratio Amount Ratio
             
Banner Corporation-consolidated:            
  Total capital to risk-weighted assets $1,386,483  12.93% $857,555  8.00% $1,071,943  10.00%
  Tier 1 capital to risk-weighted assets 1,283,208  11.97% 643,166  6.00% 643,166  6.00%
  Tier 1 leverage capital to average assets 1,283,208  10.71% 479,458  4.00%  n/a  n/a 
  Common equity tier 1 capital to risk-weighted assets 1,139,708  10.63% 482,375  4.50%  n/a  n/a 
Banner Bank:            
  Total capital to risk-weighted assets 1,321,580  12.55% 842,227  8.00% 1,052,784  10.00%
  Tier 1 capital to risk-weighted assets 1,220,811  11.60% 631,670  6.00% 842,227  8.00%
  Tier 1 leverage capital to average assets 1,220,811  10.45% 467,330  4.00% 584,163  5.00%
  Common equity tier 1 capital to risk-weighted assets 1,220,811  11.60% 473,753  4.50% 684,310  6.50%
Islanders Bank:            
  Total capital to risk-weighted assets 37,044  19.42% 15,258  8.00% 19,073  10.00%
  Tier 1 capital to risk-weighted assets 34,658  18.17% 11,444  6.00% 15,258  8.00%
  Tier 1 leverage capital to average assets 34,658  11.66% 11,887  4.00% 14,859  5.00%
  Common equity tier 1 capital to risk-weighted assets 34,658  18.17% 8,583  4.50% 12,397  6.50%


            
ADDITIONAL FINANCIAL INFORMATION 
(dollars in thousands) 
(rates / ratios annualized) 
            
ANALYSIS OF NET INTEREST SPREADQuarters Ended
 December 31, 2019 September 30, 2019 December 31, 2018
 Average
Balance
Interest
and
Dividends
Yield /
Cost(3)
 Average
Balance
Interest
and
Dividends
Yield /
Cost(3)
 Average
Balance
Interest
and
Dividends
Yield /
Cost(3)
Interest-earning assets:           
Held for sale loans$202,686 $2,048 4.01% $154,529 $1,607 4.13% $83,741 $1,055 5.00%
Mortgage loans7,134,231 92,926 5.17% 6,872,426 89,948 5.19% 6,573,278 88,561 5.35%
Commercial/agricultural loans1,853,447 23,256 4.98% 1,809,397 23,750 5.21% 1,631,133 22,257 5.41%
Consumer and other loans169,197 2,685 6.30% 173,342 2,791 6.39% 172,934 2,754 6.32%
Total loans(1)9,359,561 120,915 5.13% 9,009,694 118,096 5.20% 8,461,086 114,627 5.37%
Mortgage-backed securities1,371,438 8,924 2.58% 1,358,448 9,415 2.75% 1,400,508 9,931 2.81%
Other securities418,767 2,663 2.52% 414,994 3,058 2.92% 474,659 3,633 3.04%
Interest-bearing deposits with banks107,959 531 1.95% 82,836 489 2.34% 54,577 305 2.22%
FHLB stock26,036 376 5.73% 29,400 378 5.10% 22,791 245 4.26%
Total investment securities1,924,200 12,494 2.58% 1,885,678 13,340 2.81% 1,952,535 14,114 2.87%
Total interest-earning assets11,283,761 133,409 4.69% 10,895,372 131,436 4.79% 10,413,621 128,741 4.90%
Non-interest-earning assets1,152,751    1,078,277    903,165   
Total assets$12,436,512    $11,973,649    $11,316,786   
Deposits:           
Interest-bearing checking accounts$1,228,936 564 0.18% $1,194,633 621 0.21% $1,131,030 403 0.14%
Savings accounts1,999,656 2,027 0.40% 1,854,967 2,244 0.48% 1,779,288 1,505 0.34%
Money market accounts1,607,954 2,842 0.70% 1,542,264 2,944 0.76% 1,440,889 1,638 0.45%
Certificates of deposit1,189,530 4,517 1.51% 1,155,710 4,205 1.44% 1,287,114 3,957 1.22%
Total interest-bearing deposits6,026,076 9,950 0.66% 5,747,574 10,014 0.69% 5,638,321 7,503 0.53%
Non-interest-bearing deposits3,959,097  % 3,786,143  % 3,608,930  %
Total deposits9,985,173 9,950 0.40% 9,533,717 10,014 0.42% 9,247,251 7,503 0.32%
Other interest-bearing liabilities:           
FHLB advances387,435 2,281 2.34% 476,435 3,107 2.59% 311,046 2,072 2.64%
Other borrowings126,782 121 0.38% 122,035 82 0.27% 117,724 66 0.22%
Junior subordinated debentures145,339 1,566 4.27% 140,212 1,612 4.56% 140,212 1,641 4.64%
Total borrowings659,556 3,968 2.39% 738,682 4,801 2.58% 568,982 3,779 2.64%
Total funding liabilities10,644,729 13,918 0.52% 10,272,399 14,815 0.57% 9,816,233 11,282 0.46%
Other non-interest-bearing liabilities(2)189,682    163,809    92,003   
Total liabilities10,834,411    10,436,208    9,908,236   
Shareholders' equity1,602,101    1,537,785    1,408,550   
Total liabilities and shareholders' equity$12,436,512    $11,973,993    $11,316,786   
Net interest income/rate spread $119,491 4.17%  $116,621 4.22%  $117,459 4.44%
Net interest margin  4.20%   4.25%   4.47%
Additional Key Financial Ratios:           
Return on average assets  1.07%   1.31%   1.32%
Return on average equity  8.33%   10.21%   10.57%
Average equity/average assets  12.88%   12.84%   12.45%
Average interest-earning assets/average interest-bearing liabilities  168.78%   167.98%   167.76%
Average interest-earning assets/average funding liabilities  106.00%   106.06%   106.09%
Non-interest income/average assets  0.65%   0.69%   0.74%
Non-interest expense/average assets  2.99%   2.89%   3.34%
Efficiency ratio(4)  67.03%   63.50%   68.89%
Adjusted efficiency ratio(5)  61.19%   60.71%   63.06%


(1Average 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), FHLB prepayment penalties 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 SPREADTwelve Months Ended
 December 31, 2019 December 31, 2018
 Average
Balance
Interest and
Dividends
Yield/Cost(3) Average
Balance
Interest and
Dividends
Yield/Cost(3)
Interest-earning assets:       
Held for sale loans$126,086 $5,343 4.24% $81,873 $3,926 4.80%
Mortgage loans6,911,067 361,158 5.23% 6,188,279 320,264 5.18%
Commercial/agricultural loans1,784,468 93,742 5.25% 1,519,871 79,605 5.24%
Consumer and other loans176,373 11,230 6.37% 149,184 9,575 6.42%
Total loans(1)8,997,994 471,473 5.24% 7,939,207 413,370 5.21%
Mortgage-backed securities1,368,927 38,640 2.82% 1,247,758 35,076 2.81%
Other securities441,402 12,510 2.83% 468,416 13,332 2.85%
Interest-bearing deposits with banks72,579 1,649 2.27% 59,031 1,080 1.83%
FHLB stock29,509 1,407 4.77% 20,496 774 3.78%
Total investment securities1,912,417 54,206 2.83% 1,795,701 50,262 2.80%
Total interest-earning assets10,910,411 525,679 4.82% 9,734,908 463,632 4.76%
Non-interest-earning assets1,078,277    828,184   
Total assets$11,988,688    $10,563,092   
Deposits:       
Interest-bearing checking accounts$1,188,985 2,224 0.19% $1,048,327 1,200 0.11%
Savings accounts1,890,467 8,310 0.44% 1,665,608 3,944 0.24%
Money market accounts1,534,909 10,693 0.70% 1,421,161 4,107 0.29%
Certificates of deposit1,175,942 16,403 1.39% 1,127,612 11,391 1.01%
Total interest-bearing deposits5,790,303 37,630 0.65% 5,262,708 20,642 0.39%
Non-interest-bearing deposits3,751,878  % 3,411,010  %
Total deposits9,542,181 37,630 0.39% 8,673,718 20,642 0.24%
Other interest-bearing liabilities:       
FHLB advances477,796 12,234 2.56% 253,661 5,636 2.22%
Other borrowings122,343 330 0.27% 108,730 245 0.23%
Junior subordinated debentures141,504 6,574 4.65% 140,212 6,136 4.38%
Total borrowings741,643 19,138 2.58% 502,603 12,017 2.39%
Total funding liabilities10,283,824 56,768 0.55% 9,176,321 32,659 0.36%
Other non-interest-bearing liabilities(2)164,318    79,901   
Total liabilities10,448,142    9,256,222   
Shareholders' equity1,540,546    1,306,870   
Total liabilities and shareholders' equity$11,988,688    $10,563,092   
Net interest income/rate spread $468,911 4.27%  $430,973 4.40%
Net interest margin  4.30%   4.43%
Additional Key Financial Ratios:       
Return on average assets  1.22%   1.29%
Return on average equity  9.50%   10.45%
Average equity/average assets  12.85%   12.37%
Average interest-earning assets/average interest-bearing liabilities  167.03%   168.85%
Average interest-earning assets/average funding liabilities  106.09%   106.09%
Non-interest income/average assets  0.68%   0.80%
Non-interest expense/average assets  2.98%   3.23%
Efficiency ratio(4)  64.94%   66.29%
Adjusted efficiency ratio(5)  61.18%   63.59%


(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), FHLB prepayment penalties 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 Twelve Months Ended
 Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
Net interest income before provision for loan losses$119,491  $116,621  $117,459  $468,911  $430,973 
Total non-interest income20,282  20,866  21,018  81,949  84,008 
Total GAAP revenue139,773  137,487  138,477  550,860  514,981 
Exclude net (gain) loss on sale of securities(62) 2  885  (33) 837 
Exclude net change in valuation of financial instruments carried at fair value36  69  (198) 208  (3,775)
Adjusted revenue (non-GAAP)$139,747  $137,558  $139,164  $551,035  $512,043 


ADJUSTED EARNINGS Quarters Ended Twelve Months Ended
  Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
Net income (GAAP) $33,655  $39,577  $37,528  $146,278  $136,515 
Exclude net (gain) loss on sale of securities (62) 2  885  (33) 837 
Exclude net change in valuation of financial instruments carried at fair value 36  69  (198) 208  (3,775)
Exclude acquisition-related expenses 4,419  676  4,602  7,544  5,607 
Exclude related tax (benefit) expense (1,074) (49) (1,159) (1,741) (426)
Exclude FHLB prepayment penalties 735      735   
Exclude tax adjustments related to tax reform and valuation reserves     (4,207)   (4,207)
Total adjusted earnings (non-GAAP) $37,709  $40,275  $37,451  $152,991  $134,551 
           
Diluted earnings per share (GAAP) $0.95  $1.15  $1.09  $4.18  $4.15 
Diluted adjusted earnings per share (non-GAAP) $1.07  $1.17  $1.09  $4.38  $4.09 


ADDITIONAL FINANCIAL INFORMATION          
(dollars in thousands)          
ADJUSTED EFFICIENCY RATIO Quarters Ended Twelve Months Ended
  Dec 31, 2019 Sep 30, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018
Non-interest expense (GAAP) $93,690  $87,308  $95,396  $357,728  $341,371 
Exclude acquisition-related expenses (4,419) (676) (4,602) (7,544) (5,607)
Exclude CDI amortization (2,061) (1,985) (1,935) (8,151) (6,047)
Exclude state/municipal tax expense (917) (1,011) (854) (3,880) (3,284)
Exclude REO loss (40) (126) (251) (303) (804)
Exclude FHLB prepayment penalties (735)     (735) $ 
Adjusted non-interest expense (non-GAAP) $85,518  $83,510  $87,754  $337,115  $325,629 
           
Net interest income before provision for loan losses (GAAP) $119,491  $116,621  $117,459  $468,911  $430,973 
Non-interest income (GAAP) 20,282  20,866  21,018  81,949  84,008 
Total revenue 139,773  137,487  138,477  550,860  514,981 
Exclude net (gain) loss on sale of securities (62) 2  885  (33) 837 
Exclude net change in valuation of financial instruments carried at fair value 36  69  (198) 208  (3,775)
Adjusted revenue (non-GAAP) $139,747  $137,558  $139,164  $551,035  $512,043 
           
Efficiency ratio (GAAP) 67.03% 63.50% 68.89% 64.94% 66.29%
Adjusted efficiency ratio (non-GAAP) 61.19% 60.71% 63.06% 61.18% 63.59%
                


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS Dec 31, 2019 Sep 30, 2019 Dec 31, 2018
Shareholders' equity (GAAP) $1,594,034  $1,530,935  $1,478,595 
Exclude goodwill and other intangible assets, net 402,279  365,764  372,078 
Tangible common shareholders' equity (non-GAAP) $1,191,755  $1,165,171  $1,106,517 
       
Total assets (GAAP) $12,604,031  $12,097,842  $11,871,317 
Exclude goodwill and other intangible assets, net 402,279  365,764  372,078 
Total tangible assets (non-GAAP) $12,201,752  $11,732,078  $11,499,239 
Common shareholders' equity to total assets (GAAP) 12.65% 12.65% 12.46%
Tangible common shareholders' equity to tangible assets (non-GAAP) 9.77% 9.93% 9.62%
       
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE      
Tangible common shareholders' equity (non-GAAP) $1,191,755  $1,165,171  $1,106,517 
Common shares outstanding at end of period 35,751,576  34,173,357  35,182,772 
Common shareholders' equity (book value) per share (GAAP) $44.59  $44.80  $42.03 
Tangible common shareholders' equity (tangible book value) per share (non-GAAP) $33.33  $34.10  $31.45 


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

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Source: Banner Corporation