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Banner Corporation Earns $12.2 Million, or $0.63 Per Diluted Share, in Fourth Quarter 2014 and $54.6 Million, or $2.82 Per Diluted Share in 2014; Fourth Quarter Highlighted by Announced Acquisition of AmericanWest Bank

WALLA WALLA, Wash., Jan. 21, 2015 (GLOBE NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income in the fourth quarter of 2014 was $12.2 million, or $0.63 per diluted share, compared to $11.6 million, or $0.60 per diluted share, for the fourth quarter a year ago. In the preceding quarter, net income was $14.8 million, or $0.76 per diluted share. The current quarter results were impacted by $2.8 million of acquisition-related expenses which, net of taxes, reduced net income by $0.09 per diluted share. For the year ended December 31, 2014, net income increased 17% to $54.6 million, or $2.82 per diluted share, compared to $46.6 million, or $2.40 per diluted share, in 2013.

"2014 has been an exceptional year for Banner, as we focused on our strategic objectives. During the year we produced strong revenue growth, with a solid net interest margin and increased non-interest income, maintained a moderate risk profile and appropriately deployed our capital with the acquisition of six branches in southwest Oregon and the announcement of two mergers: the pending acquisition by Banner of Siuslaw Bank in western Oregon and AmericanWest Bank of Spokane, Washington. We believe these achievements, taken together, will result in a transformational year for Banner in 2015," said Mark J. Grescovich, President and Chief Executive Officer. "With these strategic combinations we will have the opportunity to deploy our super community bank model throughout a strengthened presence in Washington, Oregon and Idaho, and enter into attractive growth markets in California and Utah. In addition to being a good geographic fit, we anticipate these acquisitions will generate considerable operating synergies. We also expect these mergers to provide significant benefits to our expanded group of clients, communities, shareholders, and employees."

Completion of the pending mergers will create a super community bank with approximately $9.7 billion in assets, $6.8 billion in loans, $8.0 billion in deposits, and 190 branches across five western states. The combined company will benefit from a diversified geography with significant growth opportunities, including nine of the top 20 western Metropolitan Statistical Areas by population, and will have an expanded balance sheet with superior asset quality, solid core deposit funding and a substantial capital base.

Fourth Quarter 2014 Highlights (compared to fourth quarter 2013, except as noted)

  • Net income was $12.2 million, or $0.63 per diluted share, compared to $11.6 million, or $0.60 per diluted share in the fourth quarter of 2013.
  • Annualized return on average assets was 1.02%.
  • Annualized return on average equity was 8.33%.
  • Revenues from core operations* increased 14% to $58.9 million, compared to $51.6 million in the fourth quarter a year ago.
  • Net interest margin was 4.08% for the current quarter, compared to 4.07% in the third quarter of 2014 and 4.01% in the fourth quarter a year ago.
  • Core deposits increased 14% and represent 80% of total deposits at December 31, 2014.
  • Deposit fees and other service charges increased 25% to $8.3 million.
  • Total loans increased $27.1 million to $3.83 billion during the quarter and increased 12% compared to a year ago.
  • Non-performing assets decreased 15% compared to the prior quarter to $20.2 million, or 0.43% of total assets, at December 31, 2014, and declined 30% from a year earlier.
  • Common stockholders' tangible equity per share* increased to $29.70 at December 31, 2014, compared to $29.16 in the preceding quarter and $27.50 in the fourth quarter a year ago.
  • The ratio of tangible common stockholders' equity to tangible assets* remained strong at 12.31% at December 31, 2014.

*Revenues from core operations and other operating income from core operations (both of which exclude acquisition bargain purchase gain, proposed acquisition termination fee, gain on sale of securities, fair value and other-than-temporary impairment (OTTI) adjustments), other operating expense from core operations (which excludes acquisition related costs) and references to tangible common stockholders' 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

Banner's fourth quarter net interest income, before the provision for loan losses, was $46.7 million, compared to $47.1 million in the preceding quarter and increased 12% compared to $41.6 million in the fourth quarter a year ago largely reflecting balance sheet growth. For the year ended December 31, 2014, net interest income increased 8% to $179.9 million, compared to $166.7 million in 2013.

"Banner's solid fourth quarter net interest margin was a result of our improved earning asset mix, modestly higher yields on cash and securities and reduced cost of deposits, which generally offset the continuing downward pressure on loan yields," said Grescovich. Banner's net interest margin was 4.08% for the fourth quarter of 2014, compared to 4.07% in the preceding quarter and 4.01% in the fourth quarter a year ago. For the year, Banner's net interest margin was 4.07% compared to 4.11% a year earlier.

Earning asset yields were unchanged compared to the preceding quarter and increased one basis point from the fourth quarter a year ago. Loan yields decreased by one basis point compared to the preceding quarter and were 12 basis points lower than the fourth quarter a year ago. Deposit costs decreased by one basis point in the fourth quarter compared to the preceding quarter and decreased by six basis points compared to the fourth quarter a year ago. The total cost of funds remained unchanged in the fourth quarter compared to the preceding quarter and declined six basis points compared to the fourth quarter a year ago. For the year ended December 31, 2014, Banner's cost of funds declined eight basis points compared to the prior year.

"Banner's mortgage banking activities further improved during the fourth 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 seen in certain prior periods, 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 $3.0 million to fourth quarter revenues compared to $2.8 million in the preceding quarter and $2.2 million in the fourth quarter of 2013. For the full year 2014, mortgage banking operations contributed $10.2 million to revenues, compared to $11.2 million in 2013.

Deposit fees and other service charges were $8.3 million in the fourth quarter of 2014, the same as in the preceding quarter and a 25% increase compared to $6.7 million in the fourth quarter a year ago. These increases reflect growth in the number of deposit accounts, increased transaction activity and Banner's decision to change its debit card relationship to MasterCard®. For all of 2014, deposit fees and other service charges increased 15% to $30.6 million, compared to $26.6 million in 2013.

Revenues from core operations* (revenues excluding the acquisition bargain purchase gain in 2014 and proposed acquisition termination fee in 2013, net gain on the sale of securities, other-than-temporary impairment recovery and net change in valuation of financial instruments) were $58.9 million in the fourth quarter compared to $59.0 million in the preceding quarter and $51.6 million in the fourth quarter of 2013. For the year 2014, revenues from core operations* increased 8% to $223.6 million, compared to $208.0 million in 2013. Total revenues were $58.6 million and $234.1 million for the quarter and year ended December 31, 2014, respectively, compared to $54.2 million and $210.1 million for the quarter and year ended December 31, 2013, respectively.

Banner's fourth quarter 2014 results included a $287,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value. In the preceding quarter, Banner's results included a $1.5 million net gain for fair value adjustments; and in the fourth quarter of 2013, Banner recorded a net loss of $324,000 for fair value adjustments.

Total other operating income, which includes the changes in the valuation of financial instruments, was $11.9 million in the fourth quarter of 2014, compared to $13.4 million in the third quarter of 2014 and $12.6 million in the fourth quarter a year ago. For the year, total other operating income increased 25% to $54.3 million compared to $43.3 million in 2013. Other operating income from core operations,* which excludes the gain on sale of securities, net changes in the valuation of financial instruments and the acquisition related bargain gain and termination fee, was $12.2 million for the fourth quarter of 2014, compared to $11.9 million for the preceding quarter and $9.9 million for the fourth quarter a year ago. For the year 2014, other operating income from core operations* increased 6% to $43.8 million compared to $41.2 million in 2013.

Banner's total other operating expenses (non-interest expenses) were $41.2 million in the fourth quarter of 2014, compared to $38.5 million in the preceding quarter and $36.9 million in the fourth quarter of 2013. For the year, Banner's operating expenses were $153.7 million compared to $141.0 million in 2013. The increase in operating expenses during the current quarter and the year was largely attributable to acquisition-related costs and incremental costs associated with operating the acquired branches, as well as generally increased compensation expenses. Acquisition-related expenses were $2.8 million in the current quarter and $4.3 million for the year ended December 31, 2014. Acquisition-related expenses were $550,000 in the fourth quarter of 2013 and for the year ended December 31, 2013.

For the fourth quarter of 2014, Banner recorded $5.1 million in state and federal income tax expense for an effective tax rate of 29.5%, which reflects normal marginal tax rates reduced by the impact of tax-exempt income and certain tax credits, as well as adjustments related to the filing of amended state income tax returns which reduced the current quarter and year-to-date tax expense by approximately $300,000. As a result, for the year ended December 31, 2014 Banner recorded $25.7 million in state and federal income tax expense for an effective tax rate of 32.0% compared to 32.6% for the year ended December 31, 2013.

Credit Quality

"Banner's fourth quarter credit quality metrics, again, clearly reflect our moderate risk profile. Our non-performing assets declined 15% compared to the third quarter of 2014, and 30% compared to a year ago," said Grescovich. "Additionally, our reserve levels remain substantial, and no provision for loan losses was required during the fourth quarter or the year despite continued loan growth."

Banner's allowance for loan losses was $75.9 million at December 31, 2014, or 1.98% of total loans outstanding and 454% of non-performing loans. Banner had net recoveries of $1.6 million in the fourth quarter of 2014, compared to net recoveries of $21,000 in the third quarter, and net charge-offs of $1.7 million in the fourth quarter a year ago. Banner did not record a provision for loan losses for the fourth quarter of 2014 or for either the preceding or year-ago quarter.

Non-performing loans were $16.7 million at December 31, 2014, a 15% decrease compared to $19.8 million at September 30, 2014 and a 32% decrease compared to $24.8 million at December 31, 2013. REO and repossessed assets decreased to $3.4 million at December 31, 2014, compared to $4.0 million at September 30, 2014 and $4.2 million a year ago.

Banner's non-performing assets decreased to 0.43% of total assets at December 31, 2014, compared to 0.50% at September 30, 2014 and 0.66% a year ago. Non-performing assets declined 15% to $20.2 million at December 31, 2014, compared to $23.8 million at September 30, 2014, and decreased 30% compared to $28.9 million a year ago.

Balance Sheet Review

"Loan production remains strong, and we continue to see significant potential for growth in our loan origination pipelines," added Grescovich. Net loans were $3.76 billion at December 31, 2014, compared to $3.73 billion at September 30, 2014, and $3.34 billion a year ago. Commercial real estate and multifamily real estate loans decreased slightly to $1.57 billion at December 31, 2014, compared to $1.58 billion at September 30, 2014, but increased 18% compared to $1.33 billion a year ago. Commercial and agricultural business loans declined slightly to $962.5 million at December 31, 2014, compared to $968.1 million three months earlier, but increased 6% compared to $910.5 million a year ago. Total construction and land and land development loans increased 8% to $411.0 million at December 31, 2014, compared to $381.5 million at September 30, 2014, and increased 17% compared to $351.3 million a year earlier.

Total assets decreased slightly to $4.72 billion at December 31, 2014, compared to $4.76 billion at September 30, 2014 but increased 8% compared to $4.39 billion a year ago. The total of securities and interest-bearing deposits held at other banks was $637.5 million at December 31, 2014, compared to $700.6 million at September 30, 2014 and $702.9 million a year ago. The average effective duration of Banner's securities portfolio was approximately 3.1 years at December 31, 2014.

Banner's total deposits decreased slightly to $3.90 billion at December 31, 2014, compared to $3.99 billion at September 30, 2014 but increased 8% compared to $3.62 billion a year ago. Non-interest-bearing account balances were $1.30 billion at December 31, 2014, which was nearly unchanged from three months earlier and increased 16% compared to $1.12 billion a year ago. Interest-bearing transaction and savings accounts were $1.83 billion at December 31, 2014, which also was nearly unchanged from three months earlier and increased 12% compared to $1.63 billion a year ago. Certificates of deposit decreased 10% to $770.5 million at December 31, 2014, compared to $853.0 million at September 30, 2014, and decreased 12% compared to $872.7 million a year earlier. Brokered deposits totaled $4.8 million at December 31, 2014 compared to $41.2 million at September 30, 2014 and $4.3 million a year ago.

"We further reduced our funding costs by remixing our deposits away from higher-priced certificates of deposit, adding new client relationships and improving our core funding position, and as a result total core deposits increased by 14% compared to the same quarter a year ago," said Grescovich.

Banner's core deposits represented 80% of total deposits at December 31, 2014, compared to 76% of total deposits a year earlier. The cost of deposits declined one basis point to 0.18% for the quarter ended December 31, 2014, compared to 0.19% for the quarter ended September 30, 2014, and declined six basis points from 0.24% for the quarter ended December 31, 2013.

At December 31, 2014, total common stockholders' equity was $584.1 million, or $29.84 per share, compared to $574.1 million at September 30, 2014, and to $539.0 million a year ago. Banner had 19.6 million shares of common stock outstanding at year end, compared to 19.5 million shares one year earlier. At year end, tangible common stockholders' equity*, which excludes other intangible assets, was $581.3 million, or 12.31% of tangible assets*, compared to $570.7 million, or 12.00% of tangible assets, at September 30, 2014, and $536.5 million, or 12.23% of tangible assets, a year ago. Banner's tangible book value per share* increased by 8% to $29.70 at December 31, 2014, compared to $27.50 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 13.42% and its total capital to risk-weighted assets ratio was 16.81% at December 31, 2014.

Conference Call

Banner will host a conference call on Thursday, January 22, 2015, at 8:00 a.m. PST, to discuss its fourth quarter and year end results. To listen to the call on-line, go to the Company's website at www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one month at (877) 344-7529 using access code 10057528, or at www.bannerbank.com.

About the Company

Banner Corporation is a $4.72 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 mergers of Banner Bank and Siuslaw Bank and of Banner Bank and AmericanWest Bank ("AmericanWest") 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 transactions 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, Oregon, Utah and California 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 or AmericanWest of other depository institutions or lines of business; (17) Banner's pending acquisition of Siuslaw Financial Group, Inc. or AmericanWest's pending acquisition of Greater Sacramento Bancorp may fail to be consummated; and (18) 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 except where expressly required by law.

Additional Information

This communication is being made in respect of the proposed merger transactions involving Banner Corporation ("Banner"), Siuslaw Financial Group, Inc. and Starbuck Bancshares, Inc. ("Starbuck"), the parent company of AmericanWest Bank. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities. Banner has filed a proxy statement on Schedule 14A with the SEC in connection with the proposed transaction to acquire Starbuck, which after becoming effective will be sent to the Banner shareholders. Shareholders are advised to read the proxy statement when it becomes available because it will contain important information about Banner, Starbuck, and the proposed transaction. Banner also plans to file other documents with the SEC regarding the proposed transaction with Starbuck and the pending proposed merger transaction with Siuslaw Financial Group, Inc. When filed, these documents relating to the proposed transactions 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. Alternatively, these documents, when available, 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.

Banner Corporation and its respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Banner shareholders in connection with the proposed transaction with Starbuck. Information about these participants may be found in the definitive proxy statement of Banner relating to its 2014 Annual Meeting of Stockholders filed with the SEC by Banner on March 24, 2014. The definitive proxy statement can be obtained free of charge from the sources indicated above. Additional information regarding the interests of such participants will be included in the proxy statement and other relevant documents regarding the proposed merger transaction filed with the SEC when they become available, copies of which may also be obtained free of charge from the sources indicated above.

Banner has filed a registration statement on Form S-4 with the SEC in connection with the merger transaction with Siuslaw Financial Group, Inc. 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 CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN, OR WILL CONTAIN, IMPORTANT INFORMATION ABOUT BANNER, SIUSLAW AND THE PROPOSED TRANSACTION. 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 Twelve Months Ended
(in thousands except shares and per share data) Dec 31, 2014 Sep 30, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013
INTEREST INCOME:
Loans receivable $ 46,102 $ 46,496 $ 41,470 $ 177,541 $ 167,204
Mortgage-backed securities 1,403 1,459 1,321 5,779 5,168
Securities and cash equivalents 1,746 1,809 1,804 7,341 7,340
49,251 49,764 44,595 190,661 179,712
INTEREST EXPENSE:
Deposits 1,801 1,903 2,198 7,578 9,737
Federal Home Loan Bank advances 16 20 7 125 99
Other borrowings 40 43 41 172 192
Junior subordinated debentures 734 734 742 2,914 2,968
2,591 2,700 2,988 10,789 12,996
Net interest income before provision for loan losses 46,660 47,064 41,607 179,872 166,716
PROVISION FOR LOAN LOSSES
Net interest income 46,660 47,064 41,607 179,872 166,716
OTHER OPERATING INCOME:
Deposit fees and other service charges 8,317 8,289 6,670 30,553 26,581
Mortgage banking operations 2,966 2,842 2,168 10,249 11,170
Miscellaneous 916 761 1,110 2,957 3,484
12,199 11,892 9,948 43,759 41,235
Net gain on sale of securities 1 6 2 42 1,022
Other-than-temporary impairment recovery 409
Net change in valuation of financial instruments carried at fair value (287) 1,452 (324) 1,374 (2,278)
Proposed acquisition termination fee 2,954 2,954
Acquisition bargain purchase gain 9,079
Total other operating income 11,913 13,350 12,580 54,254 43,342
OTHER OPERATING EXPENSE:
Salary and employee benefits 23,321 22,971 21,191 89,778 84,388
Less capitalized loan origination costs (3,050) (3,204) (2,371) (11,730) (11,227)
Occupancy and equipment 5,689 5,819 5,362 22,743 21,423
Information / computer data services 2,147 2,131 1,956 8,131 7,309
Payment and card processing services 2,998 3,201 2,586 11,460 9,870
Professional services 863 784 1,531 3,753 4,331
Advertising and marketing 1,387 2,454 2,033 6,266 6,885
Deposit insurance 595 607 502 2,415 2,329
State/municipal business and use taxes 415 475 478 1,437 1,941
Real estate operations (187) (190) 357 (446) (689)
Amortization of core deposit intangibles 531 531 488 1,990 1,941
Miscellaneous 3,735 3,410 2,266 13,619 11,924
38,444 38,989 36,379 149,416 140,425
Acquisition related costs 2,785 (494) 550 4,325 550
Total other operating expense 41,229 38,495 36,929 153,741 140,975
Income before provision for income taxes 17,344 21,919 17,258 80,385 69,083
PROVISION FOR INCOME TAXES 5,118 7,076 5,704 25,738 22,528
NET INCOME $ 12,226 $ 14,843 $ 11,554 $ 54,647 $ 46,555
Earnings per share available to common shareholders:
Basic $ 0.63 $ 0.77 $ 0.60 $ 2.82 $ 2.40
Diluted $ 0.63 $ 0.76 $ 0.60 $ 2.82 $ 2.40
Cumulative dividends declared per common share $ 0.18 $ 0.18 $ 0.15 $ 0.72 $ 0.54
Weighted average common shares outstanding:
Basic 19,374,228 19,372,740 19,344,174 19,359,409 19,361,411
Diluted 19,441,712 19,419,344 19,398,213 19,402,656 19,397,360
Change in common shares outstanding 43 2,801 719 27,779 88,804
FINANCIAL CONDITION
(in thousands except shares and per share data)
Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
ASSETS
Cash and due from banks $ 71,077 $ 69,023 $ 69,711
Federal funds and interest-bearing deposits 54,995 82,702 67,638
Securities - trading 40,258 51,076 62,472
Securities - available for sale 411,021 433,745 470,280
Securities - held to maturity 131,258 133,069 102,513
Federal Home Loan Bank stock 27,036 29,106 35,390
Loans receivable:
Held for sale 2,786 6,949 2,734
Held for portfolio 3,831,034 3,799,746 3,415,711
Allowance for loan losses (75,907) (74,331) (74,258)
3,757,913 3,732,364 3,344,187
Accrued interest receivable 15,279 17,062 13,996
Real estate owned held for sale, net 3,352 3,928 4,044
Property and equipment, net 91,185 91,291 90,267
Other intangibles, net 2,831 3,362 2,449
Bank-owned life insurance 63,759 63,293 61,945
Other assets 53,935 49,368 64,006
$ 4,723,899 $ 4,759,389 $ 4,388,898
LIABILITIES
Deposits:
Non-interest-bearing $ 1,298,866 $ 1,304,720 $ 1,115,346
Interest-bearing transaction and savings accounts 1,829,568 1,833,404 1,629,885
Interest-bearing certificates 770,516 852,994 872,695
3,898,950 3,991,118 3,617,926
Advances from Federal Home Loan Bank at fair value 32,250 250 27,250
Customer repurchase agreements 77,185 67,605 83,056
Junior subordinated debentures at fair value 78,001 77,624 73,928
Accrued expenses and other liabilities 36,600 32,375 31,324
Deferred compensation 16,807 16,359 16,442
4,139,793 4,185,331 3,849,926
STOCKHOLDERS' EQUITY
Common stock 568,882 568,255 569,028
Retained earnings (accumulated deficit) 15,482 6,780 (25,073)
Other components of stockholders' equity (258) (977) (4,983)
584,106 574,058 538,972
$ 4,723,899 $ 4,759,389 $ 4,388,898
Common Shares Issued:
Shares outstanding at end of period 19,571,548 19,571,505 19,543,769
Less unearned ESOP shares at end of period 34,340
Shares outstanding at end of period excluding unearned ESOP shares 19,571,548 19,571,505 19,509,429
Common stockholders' equity per share (1) $ 29.84 $ 29.33 $ 27.63
Common stockholders' tangible equity per share (1) (2) $ 29.70 $ 29.16 $ 27.50
Common stockholders' tangible equity to tangible assets (2) 12.31% 12.00% 12.23%
Consolidated Tier 1 leverage capital ratio 13.42% 13.14% 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)
Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
LOANS (including loans held for sale):
Commercial real estate:
Owner occupied $ 546,783 $ 546,333 $ 502,601
Investment properties 856,942 854,284 692,457
Multifamily real estate 167,524 183,944 137,153
Commercial construction 17,337 18,606 12,168
Multifamily construction 60,193 48,606 52,081
One- to four-family construction 219,889 214,141 200,864
Land and land development:
Residential 102,435 89,649 75,695
Commercial 11,152 10,505 10,450
Commercial business 723,964 728,088 682,169
Agricultural business including secured by farmland 238,499 240,048 228,291
One- to four-family real estate 539,894 527,271 529,494
Consumer:
Consumer secured by one- to four-family real estate 222,205 215,385 173,188
Consumer-other 127,003 129,835 121,834
Total loans outstanding $ 3,833,820 $ 3,806,695 $ 3,418,445
Restructured loans performing under their restructured terms $ 29,154 $ 30,387 $ 47,428
Loans 30 - 89 days past due and on accrual $ 8,387 $ 6,925 $ 8,784
Total delinquent loans (including loans on non-accrual) $ 25,124 $ 26,703 $ 22,010
Total delinquent loans / Total loans outstanding 0.66% 0.70% 0.64%
GEOGRAPHIC CONCENTRATION
OF LOANS AT DECEMBER 31, 2014 Washington Oregon Idaho Other Total
Commercial real estate:
Owner occupied $ 383,950 $ 86,937 $ 56,348 $ 19,548 $ 546,783
Investment properties 523,806 124,604 60,053 148,479 856,942
Multifamily real estate 116,793 35,527 14,759 445 167,524
Commercial construction 15,599 1,738 17,337
Multifamily construction 50,931 8,850 412 60,193
One- to four-family construction 129,499 88,468 1,922 219,889
Land and land development:
Residential 56,675 44,707 1,053 102,435
Commercial 5,781 2,529 2,842 11,152
Commercial business 397,103 125,235 85,580 116,046 723,964
Agricultural business including secured by farmland 119,617 69,843 48,997 42 238,499
One- to four-family real estate 341,944 172,974 24,223 753 539,894
Consumer:
Consumer secured by one- to four-family real estate 136,888 69,172 14,984 1,161 222,205
Consumer-other 79,520 40,803 6,243 437 127,003
Total loans outstanding $ 2,358,106 $ 869,649 $ 319,154 $ 286,911 $ 3,833,820
Percent of total loans 61.5% 22.7% 8.3% 7.5% 100.0%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Twelve Months Ended
CHANGE IN THE Dec 31, 2014 Sep 30, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 74,331 $ 74,310 $ 75,925 $ 74,258 $ 76,759
Provision
Recoveries of loans previously charged off:
Commercial real estate 843 94 72 1,507 2,367
Construction and land 988 84 1,330 1,776 2,275
One- to four-family real estate 83 143 7 618 145
Commercial business 153 256 282 988 1,673
Agricultural business, including secured by farmland 328 587 85 1,576 697
Consumer 135 53 53 528 340
2,530 1,217 1,829 6,993 7,497
Loans charged off:
Commercial real estate (953) (1,239) (2,569)
Multifamily real estate (20) (20)
Construction and land (967) (207) (1,821)
One- to four-family real estate (253) (239) (879) (885) (2,139)
Commercial business (263) (83) (209) (1,344) (1,782)
Agricultural business, including secured by farmland (54) (125) (179) (248)
Consumer (384) (729) (488) (1,470) (1,439)
(954) (1,196) (3,496) (5,344) (9,998)
Net (charge-offs) recoveries 1,576 21 (1,667) 1,649 (2,501)
Balance, end of period $ 75,907 $ 74,331 $ 74,258 $ 75,907 $ 74,258
Net (charge-offs) recoveries / Average loans outstanding 0.041% 0.001% (0.050)% 0.045% (0.076)%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
Specific or allocated loss allowance:
Commercial real estate $ 18,784 $ 19,505 $ 16,759
Multifamily real estate 4,562 4,892 5,306
Construction and land 23,545 20,779 17,640
One- to four-family real estate 8,447 9,136 11,486
Commercial business 12,043 12,677 11,773
Agricultural business, including secured by farmland 2,821 2,947 2,841
Consumer 483 675 1,335
Total allocated 70,685 70,611 67,140
Unallocated 5,222 3,720 7,118
Total allowance for loan losses $ 75,907 $ 74,331 $ 74,258
Allowance for loan losses / Total loans outstanding 1.98% 1.95% 2.17%
Allowance for loan losses / Non-performing loans 454% 376% 300%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial $ 1,132 $ 2,701 $ 6,287
Multifamily 397
Construction and land 1,275 1,285 1,193
One- to four-family 8,834 8,615 12,532
Commercial business 537 1,037 723
Agricultural business, including secured by farmland 1,597 229
Consumer 1,187 1,138 1,173
14,562 15,402 21,908
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 993
One- to four-family 2,095 2,777 2,611
Commercial business 301
Agricultural business, including secured by farmland 105
Consumer 79 306 144
2,174 4,377 2,860
Total non-performing loans 16,736 19,779 24,768
Real estate owned (REO) 3,352 3,928 4,044
Other repossessed assets 76 69 115
Total non-performing assets $ 20,164 $ 23,776 $ 28,927
Total non-performing assets / Total assets 0.43% 0.50% 0.66%
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT DECEMBER 31, 2014 Washington Oregon Idaho Total
Secured by real estate:
Commercial $ 1,095 $ — $ 36 $ 1,131
Construction and land:
Residential land acquisition & development 750 750
Residential land improved lots 525 525
Total construction and land 1,275 1,275
One- to four-family 8,888 1,506 535 10,929
Commercial business 500 37 537
Agricultural business, including secured by farmland 604 993 1,597
Consumer 1,015 46 206 1,267
Total non-performing loans 12,102 3,857 777 16,736
Real estate owned (REO) 1,693 1,626 33 3,352
Other repossessed assets 76 76
Total non-performing assets at end of the period $ 13,871 $ 5,483 $ 810 $ 20,164
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Twelve Months Ended
REAL ESTATE OWNED Dec 31, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013
Balance, beginning of period $ 3,928 $ 4,818 $ 4,044 $ 15,778
Additions from loan foreclosures 427 700 3,264 3,166
Additions from capitalized costs (5) 4 30 348
Proceeds from dispositions of REO (1,291) (1,186) (4,923) (16,944)
Gain on sale of REO 293 3 973 2,481
Valuation adjustments in the period (295) (36) (785)
Balance, end of period $ 3,352 $ 4,044 $ 3,352 $ 4,044
DEPOSIT COMPOSITION Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
Non-interest-bearing $ 1,298,866 $ 1,304,720 $ 1,115,346
Interest-bearing checking 439,480 429,876 422,910
Regular savings accounts 901,142 899,868 798,764
Money market accounts 488,946 503,660 408,211
Interest-bearing transaction & savings accounts 1,829,568 1,833,404 1,629,885
Interest-bearing certificates 770,516 852,994 872,695
Total deposits $ 3,898,950 $ 3,991,118 $ 3,617,926
GEOGRAPHIC CONCENTRATION
OF DEPOSITS AT DECEMBER 31, 2014 Washington Oregon Idaho Total
Total deposits $ 2,789,542 $ 865,937 $ 243,471 $ 3,898,950
Percent of total deposits 71.6% 22.2% 6.2% 100.0%
INCLUDED IN TOTAL DEPOSITS Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
Public non-interest-bearing accounts $ 39,381 $ 34,535 $ 21,699
Public interest-bearing transaction & savings accounts 63,473 64,984 65,822
Public interest-bearing certificates 35,346 48,508 51,465
Total public deposits $ 138,200 $ 148,027 $ 138,986
Total brokered deposits $ 4,799 $ 41,249 $ 4,291
OTHER BORROWINGS Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
Customer repurchase agreements / "Sweep accounts" $ 77,185 $ 67,605 $ 83,056
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

Actual
Minimum for Capital Adequacy
or "Well Capitalized"
REGULATORY CAPITAL RATIOS AT DECEMBER 31, 2014 Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $ 685,065 16.81% $ 326,071 8.00%
Tier 1 capital to risk-weighted assets 633,799 15.55% 163,036 4.00%
Tier 1 leverage capital to average assets 633,799 13.42% 188,885 4.00%
Banner Bank:
Total capital to risk-weighted assets 605,618 15.52% 390,274 10.00%
Tier 1 capital to risk-weighted assets 556,518 14.26% 234,165 6.00%
Tier 1 leverage capital to average assets 556,518 12.42% 224,130 5.00%
Islanders Bank:
Total capital to risk-weighted assets 36,590 19.92% 18,367 10.00%
Tier 1 capital to risk-weighted assets 34,332 18.69% 11,020 6.00%
Tier 1 leverage capital to average assets 34,332 13.68% 12,550 5.00%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Twelve Months Ended
OPERATING PERFORMANCE Dec 31, 2014 Sep 30, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013
Average loans $ 3,813,606 $ 3,834,007 $ 3,343,494 $ 3,679,264 $ 3,275,767
Average securities 643,665 666,362 686,845 671,634 692,117
Average interest earning cash 76,082 85,090 85,335 68,696 85,178
Average non-interest-earning assets 212,071 213,045 196,034 205,378 204,077
Total average assets $ 4,745,424 $ 4,798,504 $ 4,311,708 $ 4,624,972 $ 4,257,139
Average deposits $ 3,942,903 $ 3,995,451 $ 3,573,607 $ 3,815,979 $ 3,515,493
Average borrowings 218,170 228,724 209,155 246,963 227,612
Average non-interest-bearing other liabilities (1) 2,034 2,026 (9,117) (1,992) (11,970)
Total average liabilities 4,163,107 4,226,201 3,773,645 4,060,950 3,731,135
Total average stockholders' equity 582,317 572,303 538,063 564,022 526,004
Total average liabilities and equity $ 4,745,424 $ 4,798,504 $ 4,311,708 $ 4,624,972 $ 4,257,139
Interest rate yield on loans 4.80% 4.81% 4.92% 4.83% 5.10%
Interest rate yield on securities 1.91% 1.91% 1.77% 1.92% 1.78%
Interest rate yield on cash 0.29% 0.28% 0.26% 0.30% 0.25%
Interest rate yield on interest-earning assets 4.31% 4.31% 4.30% 4.31% 4.43%
Interest rate expense on deposits 0.18% 0.19% 0.24% 0.20% 0.28%
Interest rate expense on borrowings 1.44% 1.38% 1.50% 1.30% 1.43%
Interest rate expense on interest-bearing liabilities 0.25% 0.25% 0.31% 0.27% 0.35%
Interest rate spread 4.06% 4.06% 3.99% 4.04% 4.08%
Net interest margin 4.08% 4.07% 4.01% 4.07% 4.11%
Other operating income / Average assets 1.00% 1.10% 1.16% 1.17% 1.02%
Core operating income / Average assets (2) 1.02% 0.98% 0.92% 0.95% 0.97%
Other operating expense / Average assets 3.45% 3.18% 3.40% 3.32% 3.31%
Efficiency ratio (other operating expense / revenue) 70.39% 63.72% 68.15% 65.67% 67.11%
Efficiency ratio (core other operating expense / core operating revenue)(2) 65.32% 66.13% 70.56% 66.81% 67.53%
Return on average assets 1.02% 1.23% 1.06% 1.18% 1.09%
Return on average equity 8.33% 10.29% 8.52% 9.69% 8.85%
Return on average tangible equity (3) 8.37% 10.36% 8.56% 9.74% 8.91%
Average equity / Average assets 12.27% 11.93% 12.48% 12.20% 12.36%
(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 net gain on sale of securities, fair value and other-than-temporary impairment (OTTI) adjustments and, an acquisition bargain purchase gain in the current year and proposed acquisition termination fee in the prior year Core other operating expense excludes acquisition related costs. These 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 intangible assets 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 Twelve Months Ended
Dec 31, 2014 Sep 30, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013
Net interest income before provision for loan losses $ 46,660 $ 47,064 $ 41,607 $ 179,872 $ 166,716
Total other operating income 11,913 13,350 12,580 54,254 43,342
Total GAAP revenue 58,573 60,414 54,187 234,126 210,058
Exclude net gain on sale of securities (1) (6) (2) (42) (1,022)
Exclude other-than-temporary-impairment recovery (409)
Exclude change in valuation of financial instruments carried at fair value 287 (1,452) 324 (1,374) 2,278
Exclude proposed acquisition termination fee (2,954) (2,954)
Exclude acquisition bargain purchase gain (9,079)
Revenue from core operations (non-GAAP) $ 58,859 $ 58,956 $ 51,555 $ 223,631 $ 207,951
OTHER OPERATING INCOME/EXPENSE FROM CORE OPERATIONS Quarters Ended Twelve Months Ended
Dec 31, 2014 Sep 30, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013
Total other operating income (GAAP) $ 11,913 $ 13,350 $ 12,580 $ 54,254 $ 43,342
Exclude net gain on sale of securities (1) (6) (2) (42) (1,022)
Exclude other-than-temporary-impairment recovery (409)
Exclude change in valuation of financial instruments carried at fair value 287 (1,452) 324 (1,374) 2,278
Exclude proposed acquisition termination fee (2,954) (2,954)
Exclude acquisition bargain purchase gain (9,079)
Other operating income from core operations (non-GAAP) $ 12,199 $ 11,892 $ 9,948 $ 43,759 $ 41,235
Total other operating expense (GAAP) $ 41,229 $ 38,495 $ 36,929 $ 153,741 $ 140,975
Exclude acquisition related costs (2,785) 494 (550) (4,325) (550)
Other operating expense from core operations (non-GAAP) $ 38,444 $ 38,989 $ 36,379 $ 149,416 $ 140,425
TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS Dec 31, 2014 Sep 30, 2014 Dec 31, 2013
Stockholders' equity (GAAP) $ 584,106 $ 574,058 $ 538,972
Exclude other intangible assets, net 2,831 3,362 2,449
Tangible common stockholders' equity (non-GAAP) $ 581,275 $ 570,696 $ 536,523
Total assets (GAAP) $ 4,723,899 $ 4,759,389 $ 4,388,898
Exclude other intangible assets, net 2,831 3,362 2,449
Total tangible assets (non-GAAP) $ 4,721,068 $ 4,756,027 $ 4,386,449
Tangible common stockholders' equity to tangible assets (non-GAAP) 12.31% 12.00% 12.23%
TANGIBLE COMMON STOCKHOLDERS' EQUITY PER SHARE
Tangible common stockholders' equity $ 581,275 $ 570,696 $ 536,523
Common shares outstanding at end of period 19,571,548 19,571,505 19,509,429
Common shareholders' equity (book value) per share (GAAP) $ 29.83 $ 29.33 $ 27.63
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $ 29.70 $ 29.16 $ 27.50

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