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Banner Corporation Earns $14.8 Million, or $0.76 Per Diluted Share, in Third Quarter 2014; Third Quarter Highlighted by Strong Revenue Generation, Loan and Deposit Growth

WALLA WALLA, Wash., Oct. 22, 2014 (GLOBE NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income in the third quarter of 2014 increased 27% to $14.8 million, or $0.76 per diluted share, compared to $11.7 million, or $0.60 per diluted share, for the third quarter a year ago. In the preceding quarter, net income was $17.0 million, or $0.88 per diluted share, which was augmented by a bargain purchase gain related to the acquisition of six branches in Oregon, which net of related expenses added $0.23 to earnings per share. In the first nine months of 2014, net income increased 21% to $42.4 million, or $2.19 per diluted share, compared to $35.0 million, or $1.80 per diluted share, in the first nine months of 2013.

"Our third quarter results again reflect record revenue generation from core operations*, driven by balance sheet growth, client acquisition and improved mortgage banking activity, as we continue to successfully execute our strategies designed to deliver sustainable profitability to our shareholders," said Mark J. Grescovich, President and Chief Executive Officer. "In the third quarter, we achieved additional loan growth and significantly increased core deposits while maintaining strong margins and excellent asset quality, which resulted in a substantial increase in net interest income. We also achieved meaningful increases in revenues from deposit fees and service charges as well as from mortgage banking."

"Throughout 2014 we have continued to invest in our franchise," Grescovich continued. "In August, we announced the signing of a definitive merger agreement between Banner and Siuslaw Financial Group, the holding company for Siuslaw Bank. This transaction presents a unique opportunity for us to expand our presence in Oregon, including our entry into Eugene which is the second largest metropolitan market in the state. Closing this acquisition is subject to approval of Siuslaw shareholders and the regulatory agencies as well as other customary closing conditions. During the second quarter we completed the purchase of six branches from Umpqua Bank, which also added to our presence in Oregon and contributed to our strong third quarter results. We will continue to look for strategic growth opportunities, both organic and through acquisitions, that will complement our business model and add to our revenue generation."

Third Quarter 2014 Highlights (compared to third quarter 2013, except as noted)

  • Net income increased 27% to $14.8 million, or $0.76 per diluted share, compared to $11.7 million, or $0.60 per diluted share in the third quarter of 2013.
  • Annualized return on average assets was 1.23%.
  • Annualized return on average equity was 10.29%.
  • Revenues from core operations* increased 13% to $59.0 million, compared to $52.4 million in the third quarter a year ago.
  • Net interest margin was 4.07% for the current quarter, compared to 4.06% in the second quarter of 2014 and 4.09% in the third quarter a year ago.
  • Core deposits increased 19% and represent 79% of total deposits.
  • Deposit fees and other service charges increased 19% to $8.3 million.
  • Total loans increased $44.1 million during the quarter and increased 16% compared to a year ago.
  • Non-performing assets decreased slightly compared to the prior quarter to $23.8 million, or 0.50% of total assets, at September 30, 2014, and declined 20% from a year earlier.
  • Common stockholders' tangible equity per share* increased to $29.16 at September 30, 2014 compared to $28.57 in the preceding quarter and $27.02 in the third quarter a year ago.
  • The ratio of tangible common stockholders' equity to tangible assets* remained strong at 12.00% at September 30, 2014.

*Revenues from core operations and other operating income from core operations (both of which exclude acquisition bargain purchase gain, gain on sale of securities, fair value and other-than-temporary impairment (OTTI) adjustments) and references to tangible equity per share and the ratio of tangible common equity to tangible assets (both of which exclude other intangible assets) 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 final page of this press release.

Income Statement Review

Reflecting strong balance sheet growth, Banner's third quarter net interest income, before the provision for loan losses, increased 7% to $47.1 million, compared to $43.8 million in the preceding quarter and increased 12% compared to $41.9 million in the third quarter a year ago. For the first nine months of 2014, net interest income increased 6% to $133.2 million, compared to $125.1 million in the first nine months of 2013.

"Our solid third quarter net interest margin was a result of our improved earning asset mix and reduced cost of funds, which generally offset the continuing downward pressure on loan yields," said Grescovich. Banner's net interest margin was 4.07% for the third quarter of 2014, compared to 4.06% in the preceding quarter and 4.09% in the third quarter a year ago. In the first nine months of the year, Banner's net interest margin was 4.07% compared to 4.15% for the same period a year earlier.

Earning asset yields remained unchanged compared to the preceding quarter but decreased nine basis points from the third quarter a year ago. Loan yields decreased by two basis points compared to the preceding quarter and were 25 basis points lower than the third quarter a year ago. Deposit costs decreased by two basis points in the third quarter compared to the preceding quarter and decreased by seven basis points compared to the third quarter a year ago. The total cost of funds decreased by three basis points in the third quarter compared to the preceding quarter and eight basis points compared to the third quarter a year ago.

"Banner's mortgage banking activities further improved during the third quarter of 2014, reflecting a strong home purchase market and our increased market presence. While the mortgage refinance market is slower than the elevated pace in certain prior periods, including the first six months of 2013, our originations for home purchases have continued to increase in recent periods reflecting our increased investment in this business line," said Grescovich. Mortgage banking operations contributed $2.8 million to third quarter revenues compared to $2.6 million in both the preceding quarter and the third quarter of 2013. In the first nine months of the year, mortgage banking operations contributed $7.3 million to revenues, compared to $9.0 million in the first nine months of 2013.

Deposit fees and other service charges were $8.3 million in the third quarter of 2014, a 13% increase compared to $7.3 million in the preceding quarter and a 19% increase compared to $7.0 million in the third quarter a year ago. These increases reflect growth in the number of deposit accounts, increased transaction activity and our decision to change our debit card relationship to MasterCard®. The current quarter also included a $560,000 adjustment related to the under-accrual of interchange revenue in prior periods. In the first nine months of 2014, deposit fees and other service charges increased 12% to $22.2 million, compared to $19.9 million in the first nine months of 2013.

Revenues from core operations* (revenues excluding the bargain purchase gain, net gain on the sale of securities, other-than temporary impairment recovery and net change in valuation of financial instruments) were $59.0 million in the third quarter compared to $54.4 million in the preceding quarter and $52.4 million in the third quarter of 2013. In the first nine months of 2014, revenues from core operations* were $164.8 million, compared to $156.4 million in the first nine months of 2013. Total revenues were $60.4 million and $175.6 million for the quarter and nine-month period ended September 30, 2014, respectively, compared to $52.0 million and $155.9 million for the quarter and nine-month period ended September 30, 2013, respectively.

Banner's third quarter 2014 results included a $1.5 million net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value and a $6,000 gain on sale of securities. In the preceding quarter, Banner's results included a $9.1 million acquisition bargain purchase gain based upon preliminary estimates of the fair value of the assets acquired and liabilities assumed as a result of the completed purchase of six branches from Umpqua Bank, as successor to Sterling Savings Bank, as well as a $464,000 net gain for fair value adjustments. In the third quarter of 2013, Banner recorded a net loss of $352,000 for fair value adjustments and a $2,000 gain on sale of securities.

Total other operating income, which includes the net gain on sale of securities, changes in the valuation of financial instruments and, in the previous quarter and year-to-date period, the bargain purchase gain, was $13.4 million in the third quarter of 2014, compared to $20.1 million in the second quarter of 2014 and $10.1 million in the third quarter a year ago. Year-to-date total other operating income was $42.3 million compared to $30.8 million in the first nine months of 2013. Other operating income from core operations,* which excludes the gain on sale of securities, net changes in the valuation of financial instruments and, in the previous quarter and year-to-date, the bargain purchase gain, was $11.9 million for the third quarter of 2014, compared to $10.6 million for the preceding quarter and $10.5 million for the third quarter a year ago. In the first nine months of 2014, other operating income from core operations* was $31.6 million compared to $31.3 million in the first nine months of 2013.

Banner's total other operating expenses (non-interest expenses) were $38.5 million in the third quarter of 2014, compared to $38.4 million in the preceding quarter and $34.5 million in the third quarter of 2013. Year-to-date, Banner's operating expenses were $112.5 million compared to $104.0 million in the first nine months of 2013. The increase in operating expenses is largely attributable to acquisition-related costs and incremental costs associated with operating the acquired branches as well as generally increased compensation expenses.

For the third quarter of 2014, Banner recorded $7.1 million in state and federal income tax expense for an effective tax rate of 32.3%, which reflects normal marginal tax rates reduced by the impact of tax-exempt income and certain tax credits.

Credit Quality

"Banner's third quarter of 2014 credit quality metrics again clearly reflect our moderate risk profile. Our non-performing assets declined 2% compared to the second quarter of 2014, and 20% compared to September 30, 2013," said Grescovich. "Additionally, our reserve levels remain substantial and no provision for loan losses was required during the third quarter despite continued loan growth."

Banner's allowance for loan losses was $74.3 million at September 30, 2014, or 1.95% of total loans outstanding and 376% of non-performing loans. Banner had net recoveries of $21,000 in the third quarter, compared to net charge-offs of $61,000 in the second quarter, and net charge-offs of $196,000 in the third quarter a year ago. Banner did not record a provision for loan losses for the third quarter of 2014 or for either the preceding or year-ago quarter.

Non-performing loans were $19.8 million at September 30, 2014, compared to $19.7 million at June 30, 2014 and $24.9 million at September 30, 2013. REO and repossessed assets decreased to $4.0 million at September 30, 2014, compared to $4.5 million at June 30, 2014 and $4.9 million a year ago.

Banner's non-performing assets decreased to 0.50% of total assets at September 30, 2014, compared to 0.51% at June 30, 2014 and 0.70% a year ago. Non-performing assets declined to $23.8 million at September 30, 2014, compared to $24.2 million at June 30, 2014 and $29.8 million a year ago.

Balance Sheet Review

"Banner had another strong quarter for loan production and we continue to see significant potential for growth in our loan origination pipelines," said Grescovich.

Net loans were $3.73 billion at September 30, 2014, compared to $3.69 billion at June 30, 2014, and $3.20 billion a year ago. Commercial real estate and multifamily real estate loans increased 3% to $1.58 billion at September 30, 2014, compared to $1.54 billion at June 30, 2014, and increased 26% compared to $1.26 billion a year ago. Commercial and agricultural business loans declined slightly to $969.1 million at September 30, 2014, compared to $980.9 million three months earlier, but increased 13% compared to $858.8 million a year ago. Total construction and land and land development loans increased 9% to $381.5 million at September 30, 2014, compared to $349.6 million at June 30, 2014, and increased 14 % compared to $333.6 million a year earlier.

Total assets increased slightly to $4.76 billion at September 30, 2014, compared to $4.75 billion at June 30, 2014 and increased 11% compared to $4.28 billion a year ago. The total of securities and interest-bearing deposits held at other banks was $700.6 million at September 30, 2014, compared to $712.9 million at June 30, 2014 and $744.5 million a year ago. The average effective duration of Banner's securities portfolio was approximately 3.2 years at September 30, 2014.

Banner's total deposits increased 2% to $3.99 billion at September 30, 2014, compared to $3.92 billion at June 30, 2014 and increased 13% compared to $3.54 billion a year ago. Non-interest-bearing account balances increased 8% to $1.30 billion at September 30, 2014, compared to $1.21 billion three months earlier and increased 24% compared to $1.05 billion a year ago. Interest-bearing transaction and savings accounts increased 3% to $1.83 billion at September 30, 2014, compared to $1.77 billion at June 30, 2014 and increased 16% compared to $1.58 billion a year ago. Certificates of deposit decreased 9% to $853.0 million at September 30, 2014, compared to $937.0 million at June 30, 2014, and declined 5% compared to $900.0 million a year earlier. Brokered deposits totaled $41.2 million at September 30, 2014 compared to $88.2 million at June 30, 2014 and $4.5 million at September 30, 2013.

"We continue to focus on enhancing our core deposit franchise, which includes reducing our funding costs by remixing our deposits away from higher-priced certificates of deposit, adding new client relationships and improving our core funding position," said Grescovich. "To that point, our total core deposits increased by 5% during the quarter and increased by 19% compared to the same quarter a year ago."

Banner's core deposits represented 79% of total deposits at September 30, 2014, compared to 75% of total deposits a year earlier. The cost of deposits declined two basis points to 0.19% for the quarter ended September 30, 2014, compared to 0.21% for the quarter ended June 30, 2014, and declined seven basis points from 0.26% for the quarter ended September 30, 2013.

At September 30, 2014, total common stockholders' equity was $574.1 million, or $29.33 per share, compared to $563.0 million at June 30, 2014, and to $530.0 million a year ago. Banner had 19.6 million shares of common stock outstanding at September 30, 2014, compared to 19.5 million shares one year earlier. At quarter end, tangible common stockholders' equity*, which excludes other intangible assets, was $570.7 million, or 12.00% of tangible assets*, compared to $559.1 million, or 11.79% of tangible assets, at June 30, 2014, and $527.1 million, or 12.32% of tangible assets, a year ago. Banner's tangible book value per share* increased by 8% to $29.16 at September 30, 2014, compared to $27.02 per share a year ago.

Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as "well-capitalized" under applicable regulatory standards. Banner Corporation's Tier 1 leverage capital to average assets ratio was 13.14% and its total capital to risk-weighted assets ratio was 16.59% at September 30, 2014.

Conference Call

Banner will host a conference call on Thursday, October 23, 2014, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to the Company's website at www.bannerbank.com. Investment professionals are invited to dial (888) 235-9915 to participate in the call. A replay will be available for one month at (877) 344-7529 using access code 10052662, or at www.bannerbank.com.

About the Company

Banner Corporation is a $4.76 billion bank holding company operating two commercial banks in Washington, Oregon and Idaho. Banner serves the Pacific Northwest region with 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 "believe," "will," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "plans," 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. 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. Statements about the expected timing, completion and effects of the proposed merger and all other statements in this release other than historical facts constitute forward-looking statements.

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 Siuslaw (the "Merger") 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 shareholder and regulatory approvals for the Merger might not be obtained; (3) 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; (4) 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; (5) competitive pressures among depository institutions; (6) interest rate movements and their impact on customer behavior and net interest margin; (7) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (8) fluctuations in real estate values; (9) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (10) the ability to access cost-effective funding; (11) changes in financial markets; (12) changes in economic conditions in general and in Washington, Idaho and Oregon in particular; (13) the costs, effects and outcomes of litigation; (14) new legislation or regulatory changes, including but not limited to the Dodd-Frank Act and regulations adopted thereunder, changes in capital requirements pursuant to the Dodd-Frank Act and the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (15) changes in accounting principles, policies or guidelines; (16) future acquisitions by Banner of other depository institutions or lines of business; and (17) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors.

Banner does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

Additional Information

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Banner has filed a registration statement on Form S-4 with the SEC in connection with the Merger. The registration statement includes a proxy statement of Siuslaw that also constitutes a prospectus of Banner, which will be sent to the shareholders of Siuslaw. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE MERGER BECAUSE THEY CONTAIN, OR WILL CONTAIN, IMPORTANT INFORMATION ABOUT BANNER, SIUSLAW AND THE MERGER. This document and other documents relating to the Merger can be obtained free of charge from the SEC's website at www.sec.gov. These documents also can be obtained free of charge by accessing Banner's website at:

http://www.bannerbank.com/AboutUs/InvestorRelations/SecuritiesandExchangeCommission(SEC)Filings/Pages/default.aspx or by accessing Siuslaw's website at http://www.siuslawbank.com/Investor-Relations.aspx.

Alternatively, these documents can be obtained free of charge from Banner upon written request to Banner Corporation, Attn: Investor Relations, 10 South First Avenue, Walla Walla, Washington 99362 or by calling (509) 527-3636, or from Siuslaw, upon written request to Siuslaw Financial Group, Inc., Attn: Investor Relations, P.O. Box 280, Florence, Oregon 97439 or by calling (541) 997-3486.

Banner Corporation and Siuslaw Financial Group, Inc., and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Siuslaw shareholders in connection with the merger. Information about the directors and executive officers of Siuslaw and the interests of these participants may be obtained by reading the proxy statement/prospectus regarding the proposed transaction when it becomes available.

RESULTS OF OPERATIONS Quarters Ended Nine Months Ended
(in thousands except shares and per share data) Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
INTEREST INCOME:
Loans receivable $ 46,496 $ 43,199 $ 41,953 $ 131,439 $ 125,734
Mortgage-backed securities 1,459 1,446 1,281 4,376 3,847
Securities and cash equivalents 1,809 1,895 1,803 5,595 5,535
49,764 46,540 45,037 141,410 135,116
INTEREST EXPENSE:
Deposits 1,903 1,910 2,330 5,776 7,539
Federal Home Loan Bank advances 20 51 28 110 92
Other borrowings 43 45 44 133 151
Junior subordinated debentures 734 726 742 2,180 2,225
2,700 2,732 3,144 8,199 10,007
Net interest income before provision for loan losses 47,064 43,808 41,893 133,211 125,109
PROVISION FOR LOAN LOSSES
Net interest income 47,064 43,808 41,893 133,211 125,109
OTHER OPERATING INCOME:
Deposit fees and other service charges 8,289 7,346 6,982 22,237 19,911
Mortgage banking operations 2,842 2,600 2,590 7,282 9,002
Miscellaneous 761 644 920 2,041 2,375
11,892 10,590 10,492 31,560 31,288
Net gain on sale of securities 6 2 41 1,020
Other-than-temporary impairment recovery 409
Net change in valuation of financial instruments carried at fair value 1,452 464 (352) 1,662 (1,954)
Acquisition bargain purchase gain 9,079 9,079
Total other operating income 13,350 20,133 10,142 42,342 30,763
OTHER OPERATING EXPENSE:
Salary and employee benefits 22,971 22,330 21,244 66,457 63,197
Less capitalized loan origination costs (3,204) (3,282) (2,915) (8,680) (8,856)
Occupancy and equipment 5,819 5,540 5,317 17,055 16,061
Information / computer data services 2,131 1,918 1,710 5,984 5,353
Payment and card processing services 3,201 2,746 2,530 8,462 7,284
Professional services 784 1,109 1,074 2,900 2,799
Advertising and marketing 2,454 1,370 1,556 4,878 4,853
Deposit insurance 607 637 564 1,820 1,826
State/municipal business and use taxes 475 388 461 1,022 1,463
Real estate operations (190) (109) (601) (260) (1,047)
Amortization of core deposit intangibles 531 450 471 1,460 1,453
Acquisition related costs (494) 1,979 1,530
Miscellaneous 3,410 3,359 3,079 9,884 9,660
Total other operating expense 38,495 38,435 34,490 112,512 104,046
Income before provision for income taxes 21,919 25,506 17,545 63,041 51,826
PROVISION FOR INCOME TAXES 7,076 8,499 5,880 20,620 16,825
NET INCOME $ 14,843 $ 17,007 $ 11,665 $ 42,421 $ 35,001
Earnings per share available to common shareholders:
Basic $ 0.77 $ 0.88 $ 0.60 $ 2.19 $ 1.81
Diluted $ 0.76 $ 0.88 $ 0.60 $ 2.19 $ 1.80
Cumulative dividends declared per common share $ 0.18 $ 0.18 $ 0.15 $ 0.54 $ 0.39
Weighted average common shares outstanding:
Basic 19,372,740 19,342,023 19,338,564 19,352,575 19,347,502
Diluted 19,419,344 19,409,601 19,397,329 19,385,933 19,402,659
Change in common shares outstanding 2,801 (7,831) (10,139) 27,736 88,085
FINANCIAL CONDITION
(in thousands except shares and per share data) Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
ASSETS
Cash and due from banks $ 69,023 $ 83,571 $ 69,340 $ 69,711
Federal funds and interest-bearing deposits 82,702 62,990 106,625 67,638
Securities - trading 51,076 61,393 63,887 62,472
Securities - available for sale 433,745 455,353 477,407 470,280
Securities - held to maturity 133,069 133,186 96,545 102,513
Federal Home Loan Bank stock 29,106 31,191 35,708 35,390
Loans receivable:
Held for sale 6,949 7,322 8,394 2,734
Held for portfolio 3,799,746 3,755,277 3,267,042 3,415,711
Allowance for loan losses (74,331) (74,310) (75,925) (74,258)
3,732,364 3,688,289 3,199,511 3,344,187
Accrued interest receivable 17,062 15,579 15,164 13,996
Real estate owned held for sale, net 3,928 4,388 4,818 4,044
Property and equipment, net 91,291 91,912 89,092 90,267
Other intangibles, net 3,362 3,892 2,937 2,449
Bank-owned life insurance 63,293 62,815 61,442 61,945
Other assets 49,368 50,740 60,809 64,006
$ 4,759,389 $ 4,745,299 $ 4,283,285 $ 4,388,898
LIABILITIES
Deposits:
Non-interest-bearing $ 1,304,720 $ 1,210,068 $ 1,051,831 $ 1,115,346
Interest-bearing transaction and savings accounts 1,833,404 1,771,865 1,583,430 1,629,885
Interest-bearing certificates 852,994 936,986 900,024 872,695
3,991,118 3,918,919 3,535,285 3,617,926
Advances from Federal Home Loan Bank at fair value 250 45,251 20,258 27,250
Customer repurchase agreements 67,605 88,946 82,909 83,056
Junior subordinated debentures at fair value 77,624 77,313 73,637 73,928
Accrued expenses and other liabilities 32,375 35,619 25,562 31,324
Deferred compensation 16,359 16,238 15,642 16,442
4,185,331 4,182,286 3,753,293 3,849,926
STOCKHOLDERS' EQUITY
Common stock 568,255 567,483 568,535 569,028
Retained earnings (accumulated deficit) 6,780 (4,541) (33,701) (25,073)
Other components of stockholders' equity (977) 71 (4,842) (4,983)
574,058 563,013 529,992 538,972
$ 4,759,389 $ 4,745,299 $ 4,283,285 $ 4,388,898
Common Shares Issued:
Shares outstanding at end of period 19,571,505 19,568,704 19,543,050 19,543,769
Less unearned ESOP shares at end of period 34,340 34,340
Shares outstanding at end of period excluding unearned ESOP shares 19,571,505 19,568,704 19,508,710 19,509,429
Common stockholders' equity per share (1) $ 29.33 $ 28.77 $ 27.17 $ 27.63
Common stockholders' tangible equity per share (1) (2) $ 29.16 $ 28.57 $ 27.02 $ 27.50
Common stockholders' tangible equity to tangible assets (2) 12.00 % 11.79 % 12.31 % 12.23 %
Consolidated Tier 1 leverage capital ratio 13.14 % 13.65 % 13.63 % 13.64 %
(1) Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding and excludes unallocated shares in the ESOP.
(2) Common stockholders' tangible equity excludes other intangibles. Tangible assets exclude other intangible assets. These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final page of the press release tables.
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
LOANS (including loans held for sale):
Commercial real estate:
Owner occupied $ 546,333 $ 541,558 $ 508,341 $ 502,601
Investment properties 854,284 807,499 613,757 692,457
Multifamily real estate 183,944 188,792 133,770 137,153
Commercial construction 18,606 12,638 18,730 12,168
Multifamily construction 48,606 39,864 33,888 52,081
One- to four-family construction 214,141 213,414 194,187 200,864
Land and land development:
Residential 89,649 73,030 75,576 75,695
Commercial 10,505 10,679 11,231 10,450
Commercial business 728,088 735,128 635,658 682,169
Agricultural business including secured by farmland 240,048 245,742 223,187 228,291
One- to four-family real estate 527,271 558,744 543,263 529,494
Consumer:
Consumer secured by one- to four-family real estate 215,385 209,511 170,019 173,188
Consumer-other 129,835 126,000 113,829 121,834
Total loans outstanding $ 3,806,695 $ 3,762,599 $ 3,275,436 $ 3,418,445
Restructured loans performing under their restructured terms $ 30,387 $ 37,461 $ 50,430 $ 47,428
Loans 30 - 89 days past due and on accrual $ 6,925 $ 7,670 $ 9,313 $ 8,784
Total delinquent loans (including loans on non-accrual) $ 26,703 $ 27,415 $ 32,002 $ 22,010
Total delinquent loans / Total loans outstanding 0.70 % 0.73 % 0.98 % 0.64 %
GEOGRAPHIC CONCENTRATION
OF LOANS AT SEPTEMBER 30, 2014 Washington Oregon Idaho Other Total
Commercial real estate:
Owner occupied $ 389,967 $ 85,032 $ 53,891 $ 17,443 $ 546,333
Investment properties 532,415 123,874 59,963 138,032 854,284
Multifamily real estate 141,337 27,685 14,847 75 183,944
Commercial construction 16,953 1,653 18,606
Multifamily construction 41,462 7,144 48,606
One- to four-family construction 128,882 82,656 2,603 214,141
Land and land development:
Residential 50,257 38,327 1,065 89,649
Commercial 5,055 2,569 2,881 10,505
Commercial business 392,334 121,078 80,262 134,414 728,088
Agricultural business including secured by farmland 123,910 63,146 52,992 240,048
One- to four-family real estate 329,751 173,384 23,371 765 527,271
Consumer:
Consumer secured by one- to four-family real estate 130,312 69,121 15,313 639 215,385
Consumer-other 83,379 39,818 6,241 397 129,835
Total loans outstanding $ 2,366,014 $ 833,834 $ 315,082 $ 291,765 $ 3,806,695
Percent of total loans 62.1 % 21.9 % 8.3 % 7.7 % 100.0 %
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Nine Months Ended
CHANGE IN THE Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 74,310 $ 74,371 $ 76,121 $ 74,258 $ 76,759
Provision
Recoveries of loans previously charged off:
Commercial real estate 94 274 331 664 2,295
Construction and land 84 472 507 788 945
One- to four-family real estate 143 204 19 535 138
Commercial business 256 286 339 835 1,391
Agricultural business, including secured by farmland 587 311 265 1,248 612
Consumer 53 58 68 393 287
1,217 1,605 1,529 4,463 5,668
Loans charged off:
Commercial real estate (1,001) (850) (1,239) (1,616)
Multifamily real estate (20) (20)
Construction and land (207) (207) (854)
One- to four-family real estate (239) (14) (207) (632) (1,260)
Commercial business (83) (260) (246) (1,081) (1,573)
Agricultural business, including secured by farmland (125) (248) (125) (248)
Consumer (729) (184) (174) (1,086) (951)
(1,196) (1,666) (1,725) (4,390) (6,502)
Net (charge-offs) recoveries 21 (61) (196) 73 (834)
Balance, end of period $ 74,331 $ 74,310 $ 75,925 $ 74,331 $ 75,925
Net charge-offs / Average loans outstanding (0.001)% 0.002 % 0.006 % (0.002)% 0.026 %
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
Specific or allocated loss allowance:
Commercial real estate $ 19,505 $ 18,884 $ 15,618 $ 16,759
Multifamily real estate 4,892 5,765 5,283 5,306
Construction and land 20,779 17,837 16,672 17,640
One- to four-family real estate 9,136 9,270 13,187 11,486
Commercial business 12,677 12,014 10,676 11,773
Agricultural business, including secured by farmland 2,947 2,824 3,411 2,841
Consumer 675 748 948 1,335
Total allocated 70,611 67,342 65,795 67,140
Unallocated 3,720 6,968 10,130 7,118
Total allowance for loan losses $ 74,331 $ 74,310 $ 75,925 $ 74,258
Allowance for loan losses / Total loans outstanding 1.95 % 1.97 % 2.32 % 2.17 %
Allowance for loan losses / Non-performing loans 376 % 376 % 305 % 300 %
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial $ 2,701 $ 2,692 $ 4,762 $ 6,287
Multifamily 397 422 333
Construction and land 1,285 1,296 1,660 1,193
One- to four-family 8,615 9,354 10,717 12,532
Commercial business 1,037 925 963 723
Agricultural business, including secured by farmland 229 104
Consumer 1,138 1,205 1,634 1,173
15,402 15,998 20,069 21,908
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 993 993
Multifamily 1,701
Construction and land 242
One- to four-family 2,777 2,181 2,774 2,611
Commercial business 301 280 24
Agricultural business, including secured by farmland 105
Consumer 306 293 52 144
4,377 3,747 4,793 2,860
Total non-performing loans 19,779 19,745 24,862 24,768
Real estate owned (REO) 3,928 4,388 4,818 4,044
Other repossessed assets 69 69 119 115
Total non-performing assets $ 23,776 $ 24,202 $ 29,799 $ 28,927
Total non-performing assets / Total assets 0.50 % 0.51 % 0.70 % 0.66 %
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT SEPTEMBER 30, 2014 Washington Oregon Idaho Total
Secured by real estate:
Commercial $ 3,693 $ — $ — $ 3,693
Multifamily 397 397
Construction and land:
Residential land acquisition & development 750 750
Residential land improved lots 536 536
Total construction and land 1,286 1,286
One- to four-family 9,903 947 542 11,392
Commercial business 1,294 39 5 1,338
Agricultural business, including secured by farmland 229 229
Consumer 1,233 81 130 1,444
Total non-performing loans 16,520 2,582 677 19,779
Real estate owned (REO) 1,515 2,380 33 3,928
Other repossessed assets 69 69
Total non-performing assets at end of the period $ 18,104 $ 4,962 $ 710 $ 23,776
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Nine Months Ended
REAL ESTATE OWNED Sep 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
Balance, beginning of period $ 4,388 $ 6,714 $ 4,044 $ 15,778
Additions from loan foreclosures 135 963 2,837 2,467
Additions from capitalized costs 297 37 344
Proceeds from dispositions of REO (860) (3,970) (3,633) (15,758)
Gain on sale of REO 265 1,005 680 2,477
Valuation adjustments in the period (191) (37) (490)
Balance, end of period $ 3,928 $ 4,818 $ 3,928 $ 4,818
DEPOSIT COMPOSITION Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
Non-interest-bearing $ 1,304,720 $ 1,210,068 $ 1,051,831 $ 1,115,346
Interest-bearing checking 429,876 437,810 399,343 422,910
Regular savings accounts 899,868 843,950 775,260 798,764
Money market accounts 503,660 490,105 408,827 408,211
Interest-bearing transaction & savings accounts 1,833,404 1,771,865 1,583,430 1,629,885
Interest-bearing certificates 852,994 936,986 900,024 872,695
Total deposits $ 3,991,118 $ 3,918,919 $ 3,535,285 $ 3,617,926
GEOGRAPHIC CONCENTRATION
OF DEPOSITS AT SEPTEMBER 30, 2014 Washington Oregon Idaho Total
Total deposits $ 2,889,675 $ 864,869 $ 236,574 $ 3,991,118
Percent of total deposits 72.4 % 21.7 % 5.9 % 100.0 %
INCLUDED IN TOTAL DEPOSITS Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
Public non-interest-bearing accounts $ 34,535 $ 23,886 $ 20,630 $ 21,699
Public interest-bearing transaction & savings accounts 64,984 69,664 49,840 65,822
Public interest-bearing certificates 48,508 48,180 51,562 51,465
Total public deposits $ 148,027 $ 141,730 $ 122,032 $ 138,986
Total brokered deposits $ 41,249 $ 88,209 $ 4,531 $ 4,291
OTHER BORROWINGS Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
Customer repurchase agreements / "Sweep accounts" $ 67,605 $ 88,946 $ 82,909 $ 83,056
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Actual Minimum for Capital Adequacy
or "Well Capitalized"
REGULATORY CAPITAL RATIOS AT SEPTEMBER 30, 2014 Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $ 679,311 16.59 % $ 327,607 8.00 %
Tier 1 capital to risk-weighted assets 627,828 15.33 % 163,803 4.00 %
Tier 1 leverage capital to average assets 627,828 13.14 % 191,146 4.00 %
Banner Bank:
Total capital to risk-weighted assets 599,617 15.32 % 391,421 10.00 %
Tier 1 capital to risk-weighted assets 550,395 14.06 % 234,852 6.00 %
Tier 1 leverage capital to average assets 550,395 12.14 % 226,711 5.00 %
Islanders Bank:
Total capital to risk-weighted assets 36,132 19.44 % 18,582 10.00 %
Tier 1 capital to risk-weighted assets 33,850 18.22 % 11,149 6.00 %
Tier 1 leverage capital to average assets 33,850 13.54 % 12,501 5.00 %
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Nine Months Ended
OPERATING PERFORMANCE Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
Average loans $ 3,834,007 $ 3,588,654 $ 3,291,950 $ 3,633,990 $ 3,252,943
Average securities 666,362 689,323 689,257 681,059 693,892
Average interest earning cash 85,090 54,887 79,607 66,208 85,125
Average non-interest-earning assets 213,045 197,796 190,621 203,432 206,789
Total average assets $ 4,798,504 $ 4,530,660 $ 4,251,435 $ 4,584,689 $ 4,238,749
Average deposits $ 3,995,451 $ 3,700,736 $ 3,496,194 $ 3,773,206 $ 3,495,909
Average borrowings 228,724 279,266 241,006 256,666 233,831
Average non-interest-bearing other liabilities (1) 2,026 (4,204) (13,016) (3,040) (12,931)
Total average liabilities 4,226,201 3,975,798 3,724,184 4,026,832 3,716,809
Total average stockholders' equity 572,303 554,862 527,251 557,857 521,940
Total average liabilities and equity $ 4,798,504 $ 4,530,660 $ 4,251,435 $ 4,584,689 $ 4,238,749
Interest rate yield on loans 4.81 % 4.83 % 5.06 % 4.84 % 5.17 %
Interest rate yield on securities 1.91 % 1.92 % 1.75 % 1.93 % 1.78 %
Interest rate yield on cash 0.28 % 0.31 % 0.22 % 0.30 % 0.25 %
Interest rate yield on interest-earning assets 4.31 % 4.31 % 4.40 % 4.32 % 4.48 %
Interest rate expense on deposits 0.19 % 0.21 % 0.26 % 0.20 % 0.29 %
Interest rate expense on borrowings 1.38 % 1.18 % 1.34 % 1.26 % 1.41 %
Interest rate expense on interest-bearing liabilities 0.25 % 0.28 % 0.33 % 0.27 % 0.36 %
Interest rate spread 4.06 % 4.03 % 4.07 % 4.05 % 4.12 %
Net interest margin 4.07 % 4.06 % 4.09 % 4.07 % 4.15 %
Other operating income / Average assets 1.10 % 1.78 % 0.95 % 1.23 % 0.97 %
Core operating income / Average assets (2) 0.98 % 0.94 % 0.98 % 0.92 % 0.99 %
Other operating expense / Average assets 3.18 % 3.40 % 3.22 % 3.28 % 3.28 %
Efficiency ratio (other operating expense / revenue) 63.72 % 60.11 % 66.28 % 64.09 % 66.75 %
Efficiency ratio (other operating expense / core operating revenue)(2) 66.13 % 67.02 % 65.84 % 67.36 % 66.53 %
Return on average assets 1.23 % 1.51 % 1.09 % 1.24 % 1.10 %
Return on average equity 10.29 % 12.29 % 8.78 % 10.17 % 8.97 %
Return on average tangible equity (3) 10.36 % 12.33 % 8.84 % 10.21 % 9.03 %
Average equity / Average assets 11.93 % 12.25 % 12.40 % 12.17 % 12.31 %
(1) Average non-interest-bearing liabilities include fair value adjustments related to FHLB advances and Junior Subordinated Debentures.
(2) Core operating income (or core operating revenue) excludes gain/(loss) on sale of securities, fair value and other-than-temporary impairment (OTTI) adjustments and, in the current year, and acquisition bargain purchase gain and related expenses, which represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final page of these press release tables.
(3) Average tangible equity excludes other intangibles and represents a non-GAAP financial measure. See also Non-GAAP Financial Measures reconciliation tables on the final page of these press release tables.
ADDITIONAL FINANCIAL INFORMATION
(in thousands except shares and per share data)
* Non-GAAP Financial Measures (unaudited)
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. Where applicable, comparable earnings information using GAAP financial measures is also presented.
REVENUE FROM CORE OPERATIONS Quarters Ended Nine Months Ended
Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
Net interest income before provision for loan losses $ 47,064 $ 43,808 $ 41,893 $ 133,211 $ 125,109
Total other operating income 13,350 20,133 10,142 42,342 30,763
Total GAAP revenue 60,414 63,941 52,035 175,553 155,872
Exclude net gain on sale of securities (6) (2) (41) (1,020)
Exclude other-than-temporary-impairment recovery (409)
Exclude change in valuation of financial instruments carried at fair value (1,452) (464) 352 (1,662) 1,954
Exclude acquisition bargain purchase gain (9,079) (9,079)
Revenue from core operations (non-GAAP) $ 58,956 $ 54,398 $ 52,385 $ 164,771 $ 156,397
OTHER OPERATING INCOME FROM CORE OPERATIONS Quarters Ended Nine Months Ended
Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
Total other operating income (GAAP) $ 13,350 $ 20,133 $ 10,142 $ 42,342 $ 30,763
Exclude net gain on sale of securities (6) (2) (41) (1,020)
Exclude other-than-temporary-impairment recovery (409)
Exclude change in valuation of financial instruments carried at fair value (1,452) (464) 352 (1,662) 1,954
Exclude acquisition bargain purchase gain (9,079) (9,079)
Other operating income from core operations (non-GAAP) $ 11,892 $ 10,590 $ 10,492 $ 31,560 $ 31,288
TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 Dec 31, 2013
Stockholders' equity (GAAP) $ 574,058 $ 563,013 $ 529,992 $ 538,972
Exclude other intangible assets, net 3,362 3,892 2,937 2,449
Tangible common stockholders' equity (non-GAAP) $ 570,696 $ 559,121 $ 527,055 $ 536,523
Total assets (GAAP) $ 4,759,389 $ 4,745,299 $ 4,283,285 $ 4,388,898
Exclude other intangible assets, net 3,362 3,892 2,937 2,449
Total tangible assets (non-GAAP) $ 4,756,027 $ 4,741,407 $ 4,280,348 $ 4,386,449
Tangible common stockholders' equity to tangible assets (non-GAAP) 12.00 % 11.79 % 12.31 % 12.23 %
TANGIBLE COMMON STOCKHOLDERS' EQUITY PER SHARE
Tangible common stockholders' equity $ 570,696 $ 559,121 $ 527,055 $ 536,523
Common shares outstanding at end of period 19,571,505 19,568,704 19,508,710 19,509,429
Common shareholders' equity (book value) per share (GAAP) $ 29.33 $ 28.77 $ 27.17 $ 27.63
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $ 29.16 $ 28.57 $ 27.02 $ 27.50

CONTACT: MARK J. GRESCOVICH, PRESIDENT & CEO LLOYD W. BAKER, CFO (509) 527-3636Source:Banner Corporation