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Banner Corporation Earns $12.1 Million, or $0.61 Per Diluted Share, in First Quarter 2015; First Quarter Highlighted by Completed Acquisition of Siuslaw Financial Group, Inc.

WALLA WALLA, Wash., April 20, 2015 (GLOBE NEWSWIRE) -- Banner Corporation (Nasdaq:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income in the first quarter of 2015 was $12.1 million, or $0.61 per diluted share, compared to $10.6 million, or $0.54 per diluted share, for the first quarter a year ago. In the preceding quarter, net income was $11.7 million, or $0.60 per diluted share. The current quarter results were impacted by $1.6 million of acquisition-related expenses which, net of taxes, reduced net income by $0.07 per diluted share, and the preceding 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.

"Banner had another good quarter of operating performance, with strong revenue growth, a solid net interest margin and increased non-interest income led by record mortgage banking activities and increased deposit fees and service charges. In addition, during the quarter, we completed the merger of Siuslaw Bank into Banner Bank, including the successful conversion of all the data processing and operating systems, expanding our presence in Oregon and complementing our purchase in June 2014 of six branches from Umpqua Bank," said Mark J. Grescovich, President and Chief Executive Officer. "We are also making good progress with respect to our pending acquisition of AmericanWest Bank of Spokane, Washington. With these strategic combinations, we will deploy our super community bank model throughout a strengthened presence in Washington, Oregon and Idaho, and enter attractive growth markets in California and Utah. In addition to being good geographic and cultural fits, 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, employees and shareholders."

Completion of the pending merger with AmericanWest Bank, which remains subject to regulatory approval and other closing conditions with closing anticipated early in the third quarter of 2015, 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.

First Quarter 2015 Highlights (compared to first quarter 2014, except as noted)

  • Net income was $12.1 million, or $0.61 per diluted share, compared to $10.6 million, or $0.54 per diluted share in the first quarter of 2014.
  • Annualized return on average assets was 1.02%.
  • Annualized return on average equity was 8.09%.
  • Revenues from core operations* increased 16% to $59.7 million, compared to $51.4 million in the first quarter a year ago.
  • Net interest margin was 4.09% for the current quarter, compared to 4.08% in the fourth quarter of 2014 and 4.07% a year ago.
  • Total deposits increased $420 million during the quarter to $4.32 billion and increased 17% compared to a year ago.
  • Core deposits increased 28% compared to a year earlier and represent 82% of total deposits at March 31, 2015.
  • Deposit fees and other service charges increased 23% to $8.1 million.
  • Total loans increased $281.5 million to $4.04 billion during the quarter and increased 17% compared to a year ago.
  • Revenues from mortgage banking operations were $4.1 million, an increase of 123%.
  • Common stockholders' tangible equity per share* increased to $29.75 at March 31, 2015, compared to $29.68 at the preceding quarter end and $27.87 a year ago.
  • The ratio of tangible common stockholders' equity to tangible assets* remained strong at 12.04% at March 31, 2015.

*Revenues from core operations and other operating income from core operations (both of which exclude fair value adjustments and gains and losses on the sale of securities), 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 first quarter net interest income, before the provision for loan losses, was nearly unchanged at $46.5 million, compared to $46.7 million in the preceding quarter despite having two fewer days and increased 10% compared to $42.3 million in the first quarter a year ago largely reflecting strong client acquisition and significant loan and deposit growth.

"Banner maintained a solid net interest margin during the first quarter as a result of continued improvement in our earning asset mix and cost of funds, which more than offsets the decline in loan yields," said Grescovich. "This consistent net interest margin coupled with our continuing growth of earning assets is providing a solid base for our increasing revenues from core operations." Banner's net interest margin was 4.09% for the first quarter of 2015, compared to 4.08% in the preceding quarter and 4.07% in the first quarter a year ago.

Earning asset yields were unchanged compared to the preceding quarter and decreased two basis points from the first quarter a year ago. Loan yields also were unchanged compared to the preceding quarter but were seven basis points lower than the first quarter a year ago. Deposit costs were unchanged compared to the preceding quarter and decreased by four basis points compared to the first quarter a year ago. The total cost of funds declined one basis point in the first quarter compared to the preceding quarter and declined five basis points compared to the first quarter a year ago.

"Banner's mortgage banking activities further improved during the first quarter of 2015, which reflects our increased market presence as a result of our continued investment in this business line, as well as a strong home purchase market and an increase in refinance activity," said Grescovich. Mortgage banking operations contributed $4.1 million to first quarter revenues compared to $3.0 million in the preceding quarter and $1.8 million in the first quarter of 2014.

Deposit fees and other service charges were $8.1 million in the first quarter of 2015, compared to $8.3 million in the preceding quarter and a 23% increase compared to $6.6 million in the first quarter a year ago. The year-over-year increase reflects strong organic growth as well as the recent acquisitions resulting in growth in the number of deposit accounts and increased transaction activity.

Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) were $59.7 million in the first quarter ended March 31, 2015, compared to $58.9 million in the preceding quarter and $51.4 million in the first quarter of 2014. Total revenues were $60.2 million for the quarter ended March 31, 2015, compared to $58.6 million in the preceding quarter and $51.2 million in the first quarter a year ago.

Banner's first quarter 2015 results included a $1.1 million net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, which was partially offset by $510,000 in net loss on the sale of securities. The net fair value adjustments and loss on sale of securities principally related to the sale of two pooled trust preferred collateralized debt obligation securities (TRUP CDOs) which had been carried at fair value. In the preceding quarter, Banner's results included a $287,000 net loss for fair value adjustments, and in the first quarter of 2014, Banner recorded a net loss of $255,000 for fair value adjustments.

Total other operating income, which includes the changes in the valuation of financial instruments, and gains and losses on the sale of securities, was $13.7 million in the first quarter of 2015, compared to $11.9 million in the fourth quarter of 2014 and $8.9 million in the first quarter a year ago. Other operating income from core operations,* which excludes gains and losses on sale of securities and net changes in the valuation of financial instruments, was $13.2 million for the first quarter of 2015, compared to $12.2 million for the preceding quarter and $9.1 million for the first quarter a year ago.

Banner's total other operating expenses (non-interest expenses) were $41.9 million in the first quarter of 2015, compared to $41.2 million in the preceding quarter and $35.6 million in the first quarter of 2014. The increase in operating expenses was largely attributable to acquisition-related costs and incremental costs associated with operating the 16 branches acquired in June 2014 and March 2015, as well as generally increased compensation and marketing expenses. Acquisition-related expenses were $1.6 million in the current quarter compared to $2.8 million in the preceding quarter and $45,000 in the first quarter one year ago.

For the first quarter of 2015, Banner recorded $6.1 million in state and federal income tax expense for an effective tax rate of 33.8%, which reflects normal marginal tax rates increased by the effect of certain non-deductible merger expenses and reduced by the effect of tax-exempt income and certain tax credits.

Credit Quality

"Banner's first quarter credit quality metrics continue to reflect our moderate risk profile. While our non-performing assets increased modestly compared to the fourth quarter of 2014 primarily as a result of the recent acquisition of Siuslaw Bank, they are still at a very manageable level and all of the loans and REO acquired in the merger transaction have been recorded at appropriate fair values," said Grescovich. "Additionally, our reserve levels remain adequate, and no provision for loan losses was required during the first quarter despite continued organic loan growth."

Banner's allowance for loan losses was $75.4 million at March 31, 2015, or 1.83% of total loans outstanding and 305% of non-performing loans. Banner had net charge-offs of $542,000 in the first quarter compared to net recoveries of $1.6 million in the fourth quarter of 2014, and net recoveries of $113,000 in the first quarter a year ago. Banner did not record a provision for loan losses for the first quarter of 2015 or for either the preceding or year-ago quarter.

Non-performing loans were $24.7 million at March 31, 2015, including $9.2 million from the Siuslaw Bank acquisition, compared to $16.7 million at December 31, 2014 and $22.9 million at March 31, 2014. Real estate owned and other repossessed assets totaled $5.0 million at March 31, 2015, compared to $3.4 million at December 31, 2014 and $3.5 million a year ago.

Banner's non-performing assets were 0.57% of total assets at March 31, 2015, compared to 0.43% at December 31, 2014 and 0.59% a year ago. Non-performing assets increased to $29.7 million at March 31, 2015, compared to $20.2 million at December 31, 2014, and $26.4 million a year ago.

Balance Sheet Review

"Net loans increased by $281.5 million, or 7%, during the quarter including $247 million as a result of the Siuslaw acquisition and increased 17% year over year due to strong organic growth as well as the branch purchase and Siuslaw acquisition. Loan production remained solid, and we continue to see significant potential for growth in our loan origination pipelines; however, we did experience a normal seasonal paydown in our agricultural portfolio during the quarter," added Grescovich. Net loans were $4.04 billion at March 31, 2015, compared to $3.76 billion at December 31, 2014, and $3.45 billion a year ago. The branch purchase and Siuslaw acquisition accounted for $86 million and $247 million, respectively, of the quarter-end loan portfolio. Commercial real estate and multifamily real estate loans increased 13% to $1.77 billion at March 31, 2015, compared to $1.57 billion at December 31, 2014, and increased 26% compared to $1.40 billion a year ago. Commercial business loans increased 7% to $776.6 million at March 31, 2015, compared to $724.0 million three months earlier and increased 8% compared to $716.5 million a year ago. Agricultural business loans decreased to $208.6 million at March 31, 2015, compared to $238.5 million three months earlier but were nearly unchanged compared to $208.8 million a year ago. Total construction, land and land development loans increased 5% to $431.0 million at March 31, 2015, compared to $411.0 million at December 31, 2014, and increased 14% compared to $378.8 million a year earlier.

Largely as a result of the acquisition of Siuslaw Bank, total assets increased 10% to $5.21 billion at March 31, 2015, compared to $4.72 billion at December 31, 2014 and increased 16% compared to $4.49 billion a year ago. The total of securities and interest-bearing deposits held at other banks was $782.4 million at March 31, 2015, compared to $637.5 million at December 31, 2014 and $704.1 million a year ago. The average effective duration of Banner's securities portfolio was approximately 2.8 years at March 31, 2015.

Banner's total deposits increased 11% to $4.32 billion at March 31, 2015, compared to $3.90 billion at December 31, 2014 and increased 17% compared to $3.68 billion a year ago. The branch purchase and Siuslaw acquisition accounted for $209 million and $316 million, respectively, of the deposit portfolio at March 31, 2015. Non-interest-bearing account balances increased 16% to $1.50 billion at March 31, 2015, compared to $1.30 billion three months earlier and increased 37% compared to $1.10 billion a year ago. Interest-bearing transaction and savings accounts increased 11% to $2.04 billion at March 31, 2015, compared to $1.83 billion three months earlier and increased 21% compared to $1.68 billion a year ago. Certificates of deposit increased modestly to $778.0 million at March 31, 2015, compared to $770.5 million at December 31, 2014, and decreased 14% compared to $905.0 million a year earlier. Brokered deposits totaled $4.8 million at March 31, 2015, which was unchanged from December 31, 2014. At March 31, 2014, Banner's brokered deposits totaled $59.3 million.

"In addition to adding solid core deposits from our acquisition of Siuslaw Bank, we also further reduced our funding costs by remixing our deposits away from higher-priced certificates of deposit and improving our core funding position. As a result, total core deposits increased by 28% compared to the same quarter a year ago," said Grescovich.

Banner's core deposits represented 82% of total deposits at March 31, 2015, compared to 76% of total deposits a year earlier. The cost of deposits was 0.18% for the quarter ended March 31, 2015, which was the same as the preceding quarter, and declined four basis points from 0.22% for the quarter ended March 31, 2014.

At March 31, 2015, total common stockholders' equity was $651.3 million, or $31.05 per share, compared to $583.6 million at December 31, 2014, and to $547.5 million a year ago. Banner had 21.0 million shares of common stock outstanding at quarter end, compared to 19.6 million shares one year earlier. On March 6, 2015, Banner issued 1.3 million shares in connection with the acquisition of Siuslaw Financial Group, which were valued at $44.02 per share and added $58.1 million to stockholders' equity. At quarter end, tangible common stockholders' equity*, which excludes other intangible assets, was $624.1 million, or 12.04% of tangible assets*, compared to $580.8 million, or 12.30% of tangible assets, at December 31, 2014, and $545.6 million, or 12.16% of tangible assets, a year ago. Banner's tangible book value per share* increased by 7% to $29.75 at March 31, 2015, compared to $27.87 per share a year ago.

Banner Corporation and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as "well-capitalized" under the newly implemented Basel III and Dodd Frank regulatory standards. Banner Corporation's common equity Tier 1 capital ratio was 13.48%, its Tier 1 leverage capital to average assets ratio was 14.50% and its total capital to risk-weighted assets ratio was 16.34% at March 31, 2015.

Conference Call

Banner will host a conference call on Tuesday, April 21, 2015, at 8:00 a.m. PDT, to discuss its first 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 (866) 235-9915 to participate in the call. A replay will be available for one month at (877) 344-7529 using access code 10062495, or at www.bannerbank.com.

About the Company

Banner Corporation is a $5.21 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 merger of Banner Bank and Siuslaw Bank and the proposed merger 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 regulatory approvals for the proposed 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, 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 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 except where expressly required by law.

RESULTS OF OPERATIONS Quarters Ended
(in thousands except shares and per share data) Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
INTEREST INCOME:
Loans receivable $ 46,365 $ 46,102 $ 41,743
Mortgage-backed securities 1,027 1,403 1,471
Securities and cash equivalents 1,677 1,746 1,892
49,069 49,251 45,106
INTEREST EXPENSE:
Deposits 1,733 1,801 1,964
Federal Home Loan Bank advances 17 16 38
Other borrowings 43 40 44
Junior subordinated debentures 740 734 721
2,533 2,591 2,767
Net interest income before provision for loan losses 46,536 46,660 42,339
PROVISION FOR LOAN LOSSES
Net interest income 46,536 46,660 42,339
OTHER OPERATING INCOME:
Deposit fees and other service charges 8,126 8,317 6,602
Mortgage banking operations 4,109 2,966 1,840
Miscellaneous 921 916 636
13,156 12,199 9,078
Net gain (loss) on sale of securities (510) 1 35
Net change in valuation of financial instruments carried at fair value 1,050 (287) (255)
Total other operating income 13,696 11,913 8,858
OTHER OPERATING EXPENSE:
Salary and employee benefits 24,287 23,321 21,156
Less capitalized loan origination costs (2,838) (3,050) (2,195)
Occupancy and equipment 6,006 5,689 5,696
Information / computer data services 2,253 2,147 1,935
Payment and card processing services 3,016 2,998 2,515
Professional services 814 863 1,006
Advertising and marketing 1,610 1,387 1,055
Deposit insurance 567 595 576
State/municipal business and use taxes 453 415 159
Real estate operations 24 (187) 39
Amortization of core deposit intangibles 616 531 479
Miscellaneous 3,458 3,735 3,115
40,266 38,444 35,536
Acquisition related costs 1,648 2,785 45
Total other operating expense 41,914 41,229 35,581
Income before provision for income taxes 18,318 17,344 15,616
PROVISION FOR INCOME TAXES 6,184 5,600 5,046
NET INCOME $ 12,134 $ 11,744 $ 10,570
Earnings per share available to common shareholders:
Basic $ 0.61 $ 0.61 $ 0.55
Diluted $ 0.61 $ 0.60 $ 0.54
Cumulative dividends declared per common share $ 0.18 $ 0.18 $ 0.18
Weighted average common shares outstanding:
Basic 19,760,645 19,374,228 19,345,732
Diluted 19,845,019 19,441,712 19,409,584
Change in common shares outstanding 1,405,093 43 32,766
FINANCIAL CONDITION
(in thousands except shares and per share data) Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
ASSETS
Cash and due from banks $ 83,401 $ 71,077 $ 73,316
Federal funds and interest-bearing deposits 215,114 54,995 71,459
Securities - trading 38,074 40,258 58,387
Securities - available for sale 395,607 411,021 464,657
Securities - held to maturity 133,649 131,258 109,567
Federal Home Loan Bank stock 25,544 27,036 33,288
Loans receivable:
Held for sale 9,419 2,786 3,239
Held for portfolio 4,105,399 3,831,034 3,519,673
Allowance for loan losses (75,365) (75,907) (74,371)
4,039,453 3,757,913 3,448,541
Accrued interest receivable 16,873 15,279 15,202
Real estate owned held for sale, net 4,922 3,352 3,236
Property and equipment, net 98,728 91,185 89,440
Goodwill and other intangibles, net 27,258 2,831 1,970
Bank-owned life insurance 71,290 63,759 62,377
Other assets 61,459 53,935 56,856
$ 5,211,372 $ 4,723,899 $ 4,488,296
LIABILITIES
Deposits:
Non-interest-bearing $ 1,504,768 $ 1,298,866 $ 1,095,665
Interest-bearing transaction and savings accounts 2,036,600 1,829,568 1,681,854
Interest-bearing certificates 778,049 770,516 905,016
4,319,417 3,898,950 3,682,535
Advances from Federal Home Loan Bank at fair value 250 32,250 48,351
Customer repurchase agreements 97,020 77,185 89,921
Junior subordinated debentures at fair value 84,326 78,001 74,135
Accrued expenses and other liabilities 38,164 37,082 29,189
Deferred compensation 20,882 16,807 16,641
4,560,059 4,140,275 3,940,772
STOCKHOLDERS' EQUITY
Common stock 627,553 568,882 566,964
Retained earnings (accumulated deficit) 22,623 15,000 (18,026)
Other components of stockholders' equity 1,137 (258) (1,414)
651,313 583,624 547,524
$ 5,211,372 $ 4,723,899 $ 4,488,296
Common Shares Issued:
Shares outstanding at end of period 20,976,641 19,571,548 19,576,535
Common stockholders' equity per share (1) $ 31.05 $ 29.82 $ 27.97
Common stockholders' tangible equity per share (1) (2) $ 29.75 $ 29.68 $ 27.87
Common stockholders' tangible equity to tangible assets (2) 12.04% 12.30% 12.16%
Consolidated Tier 1 leverage capital ratio 14.50% 13.41% 13.53%
(1) Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(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) Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
LOANS (including loans held for sale):
Commercial real estate:
Owner occupied $ 627,531 $ 546,783 $ 504,429
Investment properties 936,693 856,942 746,670
Multifamily real estate 208,687 167,524 153,003
Commercial construction 30,434 17,337 11,146
Multifamily construction 56,201 60,193 63,862
One- to four-family construction 228,224 219,889 219,169
Land and land development:
Residential 98,930 102,435 73,733
Commercial 17,174 11,152 10,864
Commercial business 776,579 723,964 716,546
Agricultural business including secured by farmland 208,635 238,499 208,817
One- to four-family real estate 552,423 539,894 517,621
Consumer:
Consumer secured by one- to four-family real estate 233,643 222,205 177,855
Consumer-other 139,664 127,003 119,197
Total loans outstanding $ 4,114,818 $ 3,833,820 $ 3,522,912
Restructured loans performing under their restructured terms $ 23,180 $ 29,154 $ 40,165
Loans 30 - 89 days past due and on accrual $ 8,157 $ 8,387 $ 12,662
Total delinquent loans (including loans on non-accrual) $ 32,892 $ 25,124 $ 24,602
Total delinquent loans / Total loans outstanding 0.80% 0.66% 0.70%
GEOGRAPHIC CONCENTRATION
OF LOANS AT MARCH 31, 2015 Washington Oregon Idaho Other Total
Commercial real estate:
Owner occupied $ 392,416 $ 158,137 $ 56,696 $ 20,282 $ 627,531
Investment properties 527,257 184,038 60,160 165,238 936,693
Multifamily real estate 119,166 74,536 14,672 313 208,687
Commercial construction 26,783 1,663 1,988 30,434
Multifamily construction 47,857 6,990 1,354 56,201
One- to four-family construction 130,366 95,262 2,596 228,224
Land and land development:
Residential 53,467 43,737 1,051 675 98,930
Commercial 6,194 8,164 2,816 17,174
Commercial business 429,680 144,751 82,825 119,323 776,579
Agricultural business including secured by farmland 108,464 59,837 40,292 42 208,635
One- to four-family real estate 336,332 189,572 25,778 741 552,423
Consumer:
Consumer secured by one- to four-family real estate 142,461 74,669 15,499 1,014 233,643
Consumer-other 83,021 50,042 6,222 379 139,664
Total loans outstanding $ 2,403,464 $ 1,091,398 $ 311,949 $ 308,007 $ 4,114,818
Percent of total loans 58.4% 26.5% 7.6% 7.5% 100.0%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended
Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
CHANGE IN THE
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 75,907 $ 74,331 $ 74,258
Provision
Recoveries of loans previously charged off:
Commercial real estate 14 843 296
Construction and land 108 988 232
One- to four-family real estate 6 83 188
Commercial business 178 153 293
Agricultural business, including secured by farmland 295 328 350
Consumer 46 135 282
647 2,530 1,641
Loans charged off:
Commercial real estate (238)
One- to four-family real estate (75) (253) (379)
Commercial business (107) (263) (738)
Agricultural business, including secured by farmland (818) (54)
Consumer (189) (384) (173)
(1,189) (954) (1,528)
Net (charge-offs) recoveries (542) 1,576 113
Balance, end of period $ 75,365 $ 75,907 $ 74,371
Net (charge-offs) recoveries / Average loans outstanding (0.014)% 0.041% 0.003%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Specific or allocated loss allowance:
Commercial real estate $ 19,103 $ 18,784 $ 17,412
Multifamily real estate 4,401 4,562 5,652
Construction and land 24,398 23,545 18,620
One- to four-family real estate 8,141 8,447 10,913
Commercial business 12,892 12,043 11,363
Agricultural business, including secured by farmland 3,732 2,821 2,636
Consumer 585 483 912
Total allocated 73,252 70,685 67,508
Unallocated 2,113 5,222 6,863
Total allowance for loan losses $ 75,365 $ 75,907 $ 74,371
Allowance for loan losses / Total loans outstanding 1.83% 1.98% 2.11%
Allowance for loan losses / Non-performing loans 305% 454% 325%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial $ 4,141 $ 1,132 $ 6,201
Multifamily 578
Construction and land 7,522 1,275 2,135
One- to four-family 7,111 8,834 10,587
Commercial business 418 537 977
Agricultural business, including secured by farmland 1,566 1,597
Consumer 1,843 1,187 1,399
23,179 14,562 21,299
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
One- to four-family 1,548 2,095 1,465
Agricultural business, including secured by farmland 104
Consumer 7 79
1,555 2,174 1,569
Total non-performing loans 24,734 16,736 22,868
Real estate owned (REO) 4,922 3,352 3,236
Other repossessed assets 62 76 273
Total non-performing assets $ 29,718 $ 20,164 $ 26,377
Total non-performing assets / Total assets 0.57% 0.43% 0.59%
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT MARCH 31, 2015 Washington Oregon Idaho Total
Secured by real estate:
Commercial $ 2,259 $ 1,847 $ 35 $ 4,141
Multifamily 578 578
Construction and land:
One- to four-family construction 1,388 1,388
Residential land acquisition & development 750 750
Residential land improved lots 514 514
Commercial land improved 4,870 4,870
Total construction and land 7,522 7,522
One- to four-family 7,282 1,012 365 8,659
Commercial business 384 34 418
Agricultural business, including secured by farmland 772 794 1,566
Consumer 1,182 479 189 1,850
Total non-performing loans 11,879 12,266 589 24,734
Real estate owned (REO) 1,056 3,833 33 4,922
Other repossessed assets 54 8 62
Total non-performing assets at end of the period $ 12,989 $ 16,107 $ 622 $ 29,718
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended
Mar 31, 2015 Mar 31, 2014
REAL ESTATE OWNED
Balance, beginning of period $ 3,352 $ 4,044
Additions from loan foreclosures 668 707
Additions from acquisitions 2,525
Additions from capitalized costs 4
Proceeds from dispositions of REO (1,738) (1,641)
Gain on sale of REO 115 159
Valuation adjustments in the period (37)
Balance, end of period $ 4,922 $ 3,236
DEPOSIT COMPOSITION Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Non-interest-bearing $ 1,504,768 $ 1,298,866 $ 1,095,665
Interest-bearing checking 472,033 439,480 435,910
Regular savings accounts 979,824 901,142 829,282
Money market accounts 584,743 488,946 416,662
Interest-bearing transaction & savings accounts 2,036,600 1,829,568 1,681,854
Interest-bearing certificates 778,049 770,516 905,016
Total deposits $ 4,319,417 $ 3,898,950 $ 3,682,535
GEOGRAPHIC CONCENTRATION
OF DEPOSITS AT MARCH 31, 2015 Washington Oregon Idaho Total
Total deposits $ 2,865,536 $ 1,206,944 $ 246,937 $ 4,319,417
Percent of total deposits 66.3% 28.0% 5.7% 100.0%
INCLUDED IN TOTAL DEPOSITS Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Public non-interest-bearing accounts $ 44,195 $ 39,381 $ 18,931
Public interest-bearing transaction & savings accounts 58,023 63,473 65,909
Public interest-bearing certificates 35,326 35,346 57,202
Total public deposits $ 137,544 $ 138,200 $ 142,042
Total brokered deposits $ 4,800 $ 4,799 $ 59,304
OTHER BORROWINGS Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Customer repurchase agreements / "Sweep accounts" $ 97,020 $ 77,185 $ 89,921
ADDITIONAL FINANCIAL INFORMATION
(in thousands)
ACQUISITION OF SIX OREGON BRANCHES June 20, 2014
Total consideration $ —
Fair value of assets acquired:
Cash $ 127,557
Loans receivable 87,923
Property and equipment 3,079
Intangible assets 2,372
Other assets 275
Total assets acquired 221,206
Fair value of liabilities assumed:
Deposits 212,085
Other liabilities 42
Total liabilities assumed 212,127
Net assets acquired 9,079
Acquisition bargain purchase gain $ (9,079)
ACQUISITION OF SIUSLAW BANK March 6, 2015
Amounts recorded in this table are preliminary estimates of fair value. Additional adjustments to the purchase price allocation may be required.
Cash paid $ 5,800
Fair value of common shares issued 58,106
Total consideration 63,906
Fair value of assets acquired:
Cash $ 84,405
Securities - available for sale 12,865
Loans receivable 247,098
Real estate owned held for sale 2,525
Property and equipment 8,127
Intangible assets 3,895
Other assets 11,391
Total assets acquired 370,306
Fair value of liabilities assumed:
Deposits 316,406
Junior subordinated debentures 5,959
Other liabilities 5,183
Total liabilities assumed 327,548
Net assets acquired 42,758
Goodwill $ 21,148
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 MARCH 31, 2015 Amount Ratio Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $ 756,727 16.34% $ 370,451 8.00% $ 463,063 10.00%
Tier 1 capital to risk-weighted assets 698,628 15.09% 277,838 6.00% 370,451 8.00%
Tier 1 leverage capital to average assets 698,628 14.50% 192,665 4.00% 240,831 5.00%
Common equity tier 1 capital 624,028 13.48% 208,379 4.50% 300,991 6.50%
Banner Bank:
Total capital to risk-weighted assets 666,565 14.95% 356,637 8.00% 445,796 10.00%
Tier 1 capital to risk-weighted assets 610,625 13.70% 267,478 6.00% 356,637 8.00%
Tier 1 leverage capital to average assets 610,625 13.37% 182,654 4.00% 228,317 5.00%
Common equity tier 1 capital 610,625 13.70% 200,608 4.50% 289,767 6.50%
Islanders Bank:
Total capital to risk-weighted assets 37,233 19.32% 15,419 8.00% 19,273 10.00%
Tier 1 capital to risk-weighted assets 34,824 18.07% 11,564 6.00% 15,419 8.00%
Tier 1 leverage capital to average assets 34,824 13.95% 9,983 4.00% 12,478 5.00%
Common equity tier 1 capital 34,824 18.07% 8,673 4.50% 12,528 6.50%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended
OPERATING PERFORMANCE Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Average loans $ 3,920,255 $ 3,813,606 $ 3,475,369
Average securities 600,806 643,665 687,764
Average interest earning cash 91,202 76,082 58,352
Average non-interest-earning assets 230,634 212,071 200,227
Total average assets $ 4,842,897 $ 4,745,424 $ 4,421,712
Average deposits $ 3,997,763 $ 3,942,903 $ 3,619,299
Average borrowings 232,147 218,170 262,378
Average non-interest-bearing other liabilities (1) 4,569 2,039 (6,083)
Total average liabilities 4,234,479 4,163,112 3,875,594
Total average stockholders' equity 608,418 582,312 546,118
Total average liabilities and equity $ 4,842,897 $ 4,745,424 $ 4,421,712
Interest rate yield on loans 4.80% 4.80% 4.87%
Interest rate yield on securities 1.79% 1.91% 1.96%
Interest rate yield on cash 0.24% 0.29% 0.31%
Interest rate yield on interest-earning assets 4.31% 4.31% 4.33%
Interest rate expense on deposits 0.18% 0.18% 0.22%
Interest rate expense on borrowings 1.40% 1.44% 1.24%
Interest rate expense on interest-bearing liabilities 0.24% 0.25% 0.29%
Interest rate spread 4.07% 4.06% 4.04%
Net interest margin 4.09% 4.08% 4.07%
Other operating income / Average assets 1.15% 1.00% 0.81%
Core operating income / Average assets (2) 1.10% 1.02% 0.83%
Other operating expense / Average assets 3.51% 3.45% 3.26%
Core other operating expense / Average assets (2) 3.37% 3.21% 3.26%
Efficiency ratio (other operating expense / revenue) 69.59% 70.39% 69.50%
Efficiency ratio (core other operating expense / core operating revenue)(2) 67.46% 65.32% 69.11%
Return on average assets 1.02% 0.98% 0.97%
Return on average equity 8.09% 8.00% 7.85%
Return on average tangible equity (3) 8.22% 8.04% 7.88%
Average equity / Average assets 12.56% 12.27% 12.35%
(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. 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
(dollars 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
Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Net interest income before provision for loan losses $ 46,536 $ 46,660 $ 42,339
Total other operating income 13,696 11,913 8,858
Total GAAP revenue 60,232 58,573 51,197
Exclude net gain on sale of securities 510 (1) (35)
Exclude change in valuation of financial instruments carried at fair value (1,050) 287 255
Revenue from core operations (non-GAAP) $ 59,692 $ 58,859 $ 51,417
OTHER OPERATING INCOME/EXPENSE FROM CORE OPERATIONS Quarters Ended
Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Total other operating income (GAAP) $ 13,696 $ 11,913 $ 8,858
Exclude net gain (loss) on sale of securities 510 (1) (35)
Exclude change in valuation of financial instruments carried at fair value (1,050) 287 255
Other operating income from core operations (non-GAAP) $ 13,156 $ 12,199 $ 9,078
Total other operating expense (GAAP) $ 41,914 $ 41,229 $ 35,581
Exclude acquisition related costs (1,648) (2,785) (45)
Other operating expense from core operations (non-GAAP) $ 40,266 $ 38,444 $ 35,536
TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
Stockholders' equity (GAAP) $ 651,313 $ 583,624 $ 547,524
Exclude other intangible assets, net 27,258 2,831 1,970
Tangible common stockholders' equity (non-GAAP) $ 624,055 $ 580,793 $ 545,554
Total assets (GAAP) $ 5,211,372 $ 4,723,899 $ 4,488,296
Exclude other intangible assets, net 27,258 2,831 1,970
Total tangible assets (non-GAAP) $ 5,184,114 $ 4,721,068 $ 4,486,326
Tangible common stockholders' equity to tangible assets (non-GAAP) 12.04% 12.30% 12.16%
TANGIBLE COMMON STOCKHOLDERS' EQUITY PER SHARE
Tangible common stockholders' equity $ 624,055 $ 580,793 $ 545,554
Common shares outstanding at end of period 20,976,641 19,571,548 19,576,535
Common stockholders' equity (book value) per share (GAAP) $ 31.05 $ 29.82 $ 27.97
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $ 29.75 $ 29.68 $ 27.87

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