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Banner Corporation Earns $13.2 Million, or $0.64 Per Diluted Share, in Second Quarter 2015; Highlighted by a Strong Revenue Increase and Double Digit Year-over-Year Loan and Deposit Growth

WALLA WALLA, Wash., July 20, 2015 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income in the second quarter of 2015 of $13.2 million, or $0.64 per diluted share, compared to $12.1 million, or $0.61 per diluted share, in the preceding quarter and $17.0 million, or $0.88 per diluted share, in the second quarter a year ago. The current quarter results were impacted by $3.9 million of acquisition-related expenses which, net of taxes, reduced net income by $0.13 per diluted share, and the preceding 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. In the second quarter of 2014, Banner recognized a $9.1 million bargain purchase gain related to the acquisition of six branches in southwest Oregon, which net of related acquisition expenses contributed $0.23 to diluted net income per share.

In the first six months of the year, net income was $25.4 million, or $1.25 per diluted share, compared to $27.5 million, or $1.42 per diluted share, in the first six months of 2014, which included the $9.1 million bargain purchase gain. Acquisition related expenses were $5.5 million, or $0.27 per diluted share, for the first six months of 2015 compared to $2.0 million, or $0.10 per diluted share, for the first six months of 2014.

"We continue to generate solid revenue growth driven by balance sheet expansion, client acquisition and robust mortgage banking activity, which was particularly strong in the first half of the year," said Mark J. Grescovich, President and Chief Executive Officer. "In addition to solid organic growth, our completed merger of Siuslaw Bank into Banner Bank in March 2015 and our purchase in June 2014 of six branches from Umpqua Bank have meaningfully contributed to our strong revenue generation. We are also making good progress with 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. We expect these mergers to provide significant benefits to our expanding 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, is anticipated to close late in the third quarter of 2015 and 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.

Second Quarter 2015 Highlights

  • Net income was $13.2 million, or $0.64 per diluted share.
  • Annualized return on average assets was 1.02%.
  • Annualized return on average equity was 8.05%.
  • Revenues from core operations* increased 22% to $66.8 million, compared to $54.6 million in the second quarter a year ago.
  • Net interest margin was 4.19% for the current quarter, compared to 4.09% in the first quarter of 2015 and 4.06% in the second quarter of 2014.
  • Deposit fees and other service charges were $9.6 million, an increase of 18% compared to the preceding quarter and 30% year-over-year.
  • Revenues from mortgage banking operations were $4.7 million, an increase of 14% compared to the preceding quarter and 81% year-over-year.
  • Net loans increased by $129.7 million, or 3%, during the quarter, and increased 13% year-over-year.
  • Total deposits increased 10% to $4.30 billion compared to a year ago.
  • Core deposits represented 82% of total deposits at June 30, 2015.
  • Common stockholders' tangible equity per share* increased to $30.22 at June 30, 2015, compared to $29.75 at the preceding quarter end and $28.54 a year ago.
  • The ratio of tangible common stockholders' equity to tangible assets* remained strong at 12.26% at June 30, 2015.

*Revenues from core operations and other operating income from core operations (both of which exclude fair value adjustments and gains, losses on the sale of securities and acquisition bargain purchase gain), 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 goodwill and 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 last page of this press release.

Income Statement Review

Banner's second quarter net interest income, before the provision for loan losses, increased 11% to $51.5 million, compared to $46.5 million in the preceding quarter and increased 17% compared to $43.8 million in the second quarter a year ago, largely reflecting strong client acquisition and significant organic loan and deposit growth as well as the recent acquisition. In the first six months of 2015, Banner's net interest income increased 14% to $98.0 million compared to $86.1 million in the first six months of 2014.

"Banner maintained a solid net interest margin during the second quarter as a result of continued improvement in our earning asset mix, improved yields on loans and securities and reduced cost of funds," said Grescovich. "The net interest margin was aided by a substantial credit recovery during the current quarter, which contributed $471,000 to net interest income and added four basis points to the second quarter net interest margin. In addition, the current quarter was impacted by $414,000 of accretion of purchase accounting discounts from the Siuslaw acquisition which contributed another three basis points to the margin." Banner's net interest margin was 4.19% for the second quarter of 2015, compared to 4.09% in the preceding quarter and 4.06% in the second quarter a year ago. In the first six months of the year, Banner's net interest margin was 4.14% compared to 4.06% in the first six months of 2014.

Earning asset yields increased 10 basis points compared to both the preceding quarter and second quarter a year ago. Loan yields increased 10 basis points compared to the preceding quarter and were seven basis points higher than the second quarter a year ago. The credit recovery added five basis points to the current quarter loan yield and the purchase accounting discount accretion added four basis points. Deposit costs decreased two basis points compared to the preceding quarter and decreased by five basis points compared to the second quarter a year ago. The total cost of funds declined one basis point in the second quarter compared to the preceding quarter and declined five basis points compared to the second quarter a year ago.

"Banner's increased market presence and our continued investment in our mortgage banking business line, coupled with strong home purchase activity in our markets, led to an increase in mortgage banking revenues during the second quarter," said Grescovich. Mortgage banking operations contributed $4.7 million to second quarter revenues compared to $4.1 million in the preceding quarter and $2.6 million in the second quarter of 2014. In the first six months of 2015, mortgage banking operations contributed $8.8 million to revenues compared to $4.4 million in the same period a year earlier. Home purchase activity accounted for 66% of second quarter mortgage banking originations and 60% of mortgage originations in the first half of 2015. Deposit fees and other service charges increased 18% to $9.6 million in the second quarter of 2015, compared to $8.1 million in the preceding quarter and increased 30% compared to $7.3 million in the second quarter a year ago. In the first six months of 2015, deposit fees and other service charges increased 27% to $17.7 million compared to $13.9 million in the first six months of 2014. 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, net change in valuation of financial instruments and the bargain purchase gain) increased 12% to $66.8 million in the second quarter ended June 30, 2015, compared to $59.7 million in the preceding quarter and increased 22% compared to $54.6 million in the second quarter of 2014. In the first six months of 2015, revenues from core operations* increased 19% to $126.5 million, compared to $106.2 million in the first six months of 2014. Total revenues were $67.6 million for the quarter ended June 30, 2015, compared to $60.2 million in the preceding quarter and $64.1 million in the second quarter a year ago which included the $9.1 million acquisition bargain purchase gain. In the first six months of 2015, total revenues were $127.8 million, compared to $115.5 million in the same period a year ago.

Banner's second quarter 2015 results included a $797,000 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 $28,000 in net loss on the sale of securities. In the preceding quarter, Banner's results included a $1.1 million net gain for fair value adjustments, which was partially offset by $510,000 in net loss on the sale of securities. In the second quarter of 2014, Banner's results included a $9.1 million acquisition bargain purchase gain based upon 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 on financial instruments carried at fair value.

Banner's total other operating income, which includes the changes in the valuation of financial instruments, gains and losses on the sale of securities and bargain purchase gain, was $16.1 million in the second quarter of 2015, compared to $13.7 million in the first quarter of 2015 and $20.3 million in the second quarter a year ago. In the first six months of 2015, total other operating income was $29.8 million compared to $29.3 million in the first six months of 2014. Other operating income from core operations,* which excludes gains and losses on sale of securities, net changes in the valuation of financial instruments and the bargain purchase gain, was $15.4 million for the second quarter of 2015, compared to $13.2 million for the preceding quarter and $10.8 million for the second quarter a year ago. Year-to-date, other operating income from core operations* increased 43% to $28.5 million, compared to $20.0 million in the same period a year ago.

Total other operating expenses (non-interest expenses) were $47.7 million in the second quarter of 2015, compared to $41.9 million in the preceding quarter and $38.4 million in the second 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 $3.9 million in the current quarter compared to $1.6 million in the preceding quarter and $2.0 million in the second quarter one year ago. Year-to-date, total other operating expenses were $89.6 million, compared to $74.0 million in the same period one year ago, with acquisition-related expenses of $5.5 million, compared to $2.0 million in the comparable period one year ago.

For the second quarter of 2015, Banner recorded $6.6 million in state and federal income tax expense for an effective tax rate of 33.3%, 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

"Our second quarter credit quality metrics continue to reflect our moderate risk profile. While our non-performing assets increased compared to a year ago, primarily as a result of the recent acquisition of Siuslaw Bank, they are still at a very modest and manageable level. 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 second quarter or preceding quarter despite continued organic loan growth."

The allowance for loan losses was $77.3 million at June 30, 2015, or 1.82% of total loans outstanding and 332% of non-performing loans. Banner had net recoveries of $2.0 million in the second quarter compared to net charge-offs of $542,000 in the first quarter of 2015 and net charge-offs of $61,000 in the second quarter a year ago. Non-performing loans were $23.3 million at June 30, 2015, compared to $24.7 million at March 31, 2015. Non-performing loans were $19.7 million at June 30, 2014. Real estate owned and other repossessed assets totaled $6.1 million at June 30, 2015, compared to $5.0 million at March 31, 2015 and $4.4 million a year ago.

Banner's non-performing assets were 0.57% of total assets at June 30, 2015, compared to 0.57% at March 31, 2015 and 0.51% a year ago. Non-performing assets were $29.4 million at June 30, 2015, compared to $29.7 million at March 31, 2015 and $24.2 million a year ago.

Balance Sheet Review

"Net loans increased by $129.7 million, or 3%, during the quarter, and increased 13% 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," added Grescovich.

Net loans were $4.17 billion at June 30, 2015, compared to $4.04 billion at March 31, 2015, and $3.69 billion a year ago. The branch purchase and Siuslaw acquisition accounted for $88 million and $245 million, respectively, of the quarter-end loan portfolio. Commercial real estate and multifamily real estate loans increased 3% to $1.82 billion at June 30, 2015, compared to $1.77 billion at March 31, 2015, and increased 18% compared to $1.54 billion a year ago. Commercial business loans increased 5% to $811.6 million at June 30, 2015, compared to $776.6 million three months earlier and increased 10% compared to $735.1 million a year ago. Agricultural business loans increased 11% to $231.0 million at June 30, 2015, compared to $208.6 million three months earlier but decreased compared to $245.7 million a year ago. Total construction, land and land development loans increased 6% to $457.3 million at June 30 2015, compared to $431.0 million at March 31, 2015, and increased 31% compared to $349.6 million a year earlier.

Banner's total assets declined slightly to $5.19 billion at June 30, 2015, compared to $5.21 billion at March 31, 2015, but increased 10% compared to $4.74 billion a year ago, largely as a result of the acquisition of Siuslaw Bank. The total of securities and interest-bearing deposits held at other banks was $650.9 million at June 30, 2015, compared to $782.4 million at March 31, 2015 and $712.9 million a year ago. The average effective duration of Banner's securities portfolio was approximately 3.1 years at June 30, 2015.

Total deposits were $4.30 billion at June 30, 2015, compared to $4.32 billion at March 31, 2015 and increased 10% compared to $3.92 billion a year ago. The branch purchase and Siuslaw acquisition accounted for $210 million and $320 million, respectively, of the deposit portfolio at June 30, 2015. Non-interest-bearing account balances were $1.48 billion at June 30, 2015, compared to $1.50 billion three months earlier and increased 23% compared to $1.21 billion a year ago. Interest-bearing transaction and savings accounts increased slightly to $2.05 billion at June 30, 2015, compared to $2.04 billion three months earlier and increased 16% compared to $1.77 billion a year ago. Certificates of deposit decreased to $765.8 million at June 30, 2015, compared to $778.0 million at March 31, 2015, and decreased 18% compared to $937.0 million a year earlier. Brokered deposits totaled $9.6 million at June 30, 2015, compared to $4.8 million at March 31, 2015 and $88.2 million a year ago.

"We continue to further reduce our funding costs by remixing our deposits away from higher-priced certificates of deposit and improving our core funding position," added Grescovich. Banner's core deposits represented 82% of total deposits at June 30, 2015, compared to 76% of total deposits a year earlier. The cost of deposits was 0.16% for the quarter ended June 30, 2015, compared to 0.18% for the preceding quarter, and declined five basis points from 0.21% for the quarter ended June 30, 2014.

At June 30, 2015, total common stockholders' equity was $660.7 million, or $31.50 per share, compared to $651.3 million at March 31, 2015 and $562.3 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 goodwill and other intangible assets, was $633.8 million, or 12.26% of tangible assets*, compared to $624.1 million, or 12.04% of tangible assets, at March 31, 2015, and $558.4 million, or 11.78% of tangible assets, a year ago. Banner's tangible book value per share* increased by 6% to $30.22 at June 30, 2015, compared to $28.54 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 13.28%, its Tier 1 leverage capital to average assets ratio was 13.89% and its total capital to risk-weighted assets ratio was 16.21% at June 30, 2015.

Conference Call

Banner will host a conference call on Tuesday, July 21, 2015, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one month at (877) 344-7529 using access code 10067440, or at www.bannerbank.com.

About the Company

Banner Corporation is a $5.19 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 Six Months Ended
(in thousands except shares and per share data) Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Jun 30, 2015 Jun 30, 2014
INTEREST INCOME:
Loans receivable $ 51,078 $ 46,365 $ 43,199 $ 97,443 $ 84,942
Mortgage-backed securities 1,275 1,027 1,446 2,302 2,917
Securities and cash equivalents 1,723 1,677 1,895 3,400 3,787
54,076 49,069 46,540 103,145 91,646
INTEREST EXPENSE:
Deposits 1,768 1,733 1,910 3,501 3,874
Federal Home Loan Bank advances 3 17 51 20 90
Other borrowings 48 43 45 91 89
Junior subordinated debentures 800 740 726 1,541 1,446
2,619 2,533 2,732 5,153 5,499
Net interest income before provision for loan losses 51,457 46,536 43,808 97,992 86,147
PROVISION FOR LOAN LOSSES
Net interest income 51,457 46,536 43,808 97,992 86,147
OTHER OPERATING INCOME:
Deposit fees and other service charges 9,563 8,126 7,346 17,689 13,947
Mortgage banking operations 4,703 4,109 2,600 8,812 4,440
Miscellaneous 1,106 921 821 2,027 1,632
15,372 13,156 10,767 28,528 20,019
Net gain (loss) on sale of securities (28) (510) (537) 35
Net change in valuation of financial instruments carried at fair value 797 1,050 464 1,847 209
Acquisition bargain purchase gain 9,079 9,079
Total other operating income 16,141 13,696 20,310 29,838 29,342
OTHER OPERATING EXPENSE:
Salary and employee benefits 26,744 24,287 22,330 51,031 43,486
Less capitalized loan origination costs (3,787) (2,838) (3,282) (6,625) (5,477)
Occupancy and equipment 6,357 6,006 5,540 12,363 11,236
Information / computer data services 2,273 2,253 1,918 4,526 3,853
Payment and card processing services 3,742 3,016 2,746 6,758 5,261
Professional services 721 814 1,109 1,536 2,115
Advertising and marketing 2,198 1,610 1,370 3,808 2,425
Deposit insurance 625 567 637 1,192 1,213
State/municipal business and use taxes 455 453 388 908 547
Real estate operations 167 24 (109) 191 (70)
Amortization of core deposit intangibles 367 616 450 983 929
Miscellaneous 3,987 3,458 3,359 7,445 6,473
43,849 40,266 36,456 84,116 71,991
Acquisition related costs 3,885 1,648 1,979 5,533 2,024
Total other operating expense 47,734 41,914 38,435 89,649 74,015
Income before provision for income taxes 19,864 18,318 25,683 38,181 41,474
PROVISION FOR INCOME TAXES 6,615 6,184 8,696 12,798 13,937
NET INCOME $ 13,249 $ 12,134 $ 16,987 $ 25,383 $ 27,537
Earnings per share available to common shareholders:
Basic $ 0.64 $ 0.61 $ 0.88 $ 1.25 $ 1.42
Diluted $ 0.64 $ 0.61 $ 0.88 $ 1.25 $ 1.42
Cumulative dividends declared per common share $ 0.18 $ 0.18 $ 0.18 $ 0.36 $ 0.36
Weighted average common shares outstanding:
Basic 20,725,833 19,760,645 19,342,023 20,245,905 19,343,867
Diluted 20,789,533 19,845,019 19,409,601 20,301,448 19,406,215
Increase (decrease) in common shares outstanding (5,960) 1,405,093 (7,831) 1,399,133 24,935
FINANCIAL CONDITION
(in thousands except shares and per share data) Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
ASSETS
Cash and due from banks $ 85,598 $ 83,401 $ 83,571 $ 71,077
Federal funds and interest-bearing deposits 98,376 215,114 62,990 54,995
Securities - trading 32,404 38,074 61,393 40,258
Securities - available for sale 387,876 395,607 455,353 411,021
Securities - held to maturity 132,197 133,649 133,186 131,258
Federal Home Loan Bank stock 6,120 25,544 31,191 27,036
Loans receivable:
Held for sale 1,154 9,419 7,322 2,786
Held for portfolio 4,245,322 4,105,399 3,755,277 3,831,034
Allowance for loan losses (77,329) (75,365) (74,310) (75,907)
4,169,147 4,039,453 3,688,289 3,757,913
Accrued interest receivable 16,792 16,873 15,579 15,279
Real estate owned held for sale, net 6,105 4,922 4,388 3,352
Property and equipment, net 101,141 98,728 91,912 91,185
Goodwill and other intangibles, net 26,891 27,258 3,892 2,831
Bank-owned life insurance 71,744 71,290 62,815 63,759
Other assets 59,867 61,459 50,058 53,199
$ 5,194,258 $ 5,211,372 $ 4,744,617 $ 4,723,163
LIABILITIES
Deposits:
Non-interest-bearing $ 1,484,315 $ 1,504,768 $ 1,210,068 $ 1,298,866
Interest-bearing transaction and savings accounts 2,047,050 2,036,600 1,771,865 1,829,568
Interest-bearing certificates 765,780 778,049 936,986 770,516
4,297,145 4,319,417 3,918,919 3,898,950
Advances from Federal Home Loan Bank at fair value 236 250 45,251 32,250
Customer repurchase agreements 94,523 97,020 88,946 77,185
Junior subordinated debentures at fair value 84,694 84,326 77,313 78,001
Accrued expenses and other liabilities 36,131 38,164 35,619 37,082
Deferred compensation 20,879 20,882 16,238 16,807
4,533,608 4,560,059 4,182,286 4,140,275
STOCKHOLDERS' EQUITY
Common stock 628,327 627,553 567,483 568,882
Retained earnings (accumulated deficit) 32,096 22,623 (5,223) 14,264
Other components of stockholders' equity 227 1,137 71 (258)
660,650 651,313 562,331 582,888
$ 5,194,258 $ 5,211,372 $ 4,744,617 $ 4,723,163
Common Shares Issued:
Shares outstanding at end of period 20,970,681 20,976,641 19,568,704 19,571,548
Common stockholders' equity per share (1) $ 31.50 $ 31.05 $ 28.74 $ 29.78
Common stockholders' tangible equity per share (1) (2) $ 30.22 $ 29.75 $ 28.54 $ 29.64
Common stockholders' tangible equity to tangible assets (2) 12.26% 12.04% 11.78% 12.29%
Consolidated Tier 1 leverage capital ratio 13.89% 14.50% 13.65% 13.41%
(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 goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the last page of the press release tables.
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
LOANS (including loans held for sale):
Commercial real estate:
Owner occupied $ 616,324 $ 627,531 $ 541,558 $ 546,783
Investment properties 996,714 936,693 807,499 856,942
Multifamily real estate 205,276 208,687 188,792 167,524
Commercial construction 45,137 30,434 12,638 17,337
Multifamily construction 60,075 56,201 39,864 60,193
One- to four-family construction 230,554 228,224 213,414 219,889
Land and land development:
Residential 105,146 98,930 73,030 102,435
Commercial 16,419 17,174 10,679 11,152
Commercial business 811,623 776,579 735,128 723,964
Agricultural business including secured by farmland 230,964 208,635 245,742 238,499
One- to four-family real estate 542,961 552,423 558,744 539,894
Consumer:
Consumer secured by one- to four-family real estate 244,216 233,643 209,511 222,205
Consumer-other 141,067 139,664 126,000 127,003
Total loans outstanding $ 4,246,476 $ 4,114,818 $ 3,762,599 $ 3,833,820
Restructured loans performing under their restructured terms $ 26,705 $ 23,180 $ 37,461 $ 29,154
Loans 30 - 89 days past due and on accrual $ 4,185 $ 8,157 $ 7,670 $ 8,387
Total delinquent loans (including loans on non-accrual) $ 27,476 $ 32,892 $ 27,415 $ 25,124
Total delinquent loans / Total loans outstanding 0.65% 0.80% 0.73% 0.66%
GEOGRAPHIC CONCENTRATION
OF LOANS AT JUNE 30, 2015 Washington Oregon Idaho Other Total
Commercial real estate:
Owner occupied $ 385,348 $ 149,324 $ 60,010 $ 21,642 $ 616,324
Investment properties 527,840 193,605 60,677 214,592 996,714
Multifamily real estate 116,599 74,095 14,582 205,276
Commercial construction 40,030 1,767 3,340 45,137
Multifamily construction 43,011 13,265 3,799 60,075
One- to four-family construction 121,261 105,505 3,191 597 230,554
Land and land development:
Residential 57,586 46,094 1,016 450 105,146
Commercial 5,590 8,029 2,800 16,419
Commercial business 431,957 154,264 98,252 127,150 811,623
Agricultural business including secured by farmland 111,190 73,630 46,044 100 230,964
One- to four-family real estate 333,172 186,311 22,749 729 542,961
Consumer:
Consumer secured by one- to four-family real estate 149,376 77,119 16,728 993 244,216
Consumer-other 83,324 50,995 6,366 382 141,067
Total loans outstanding $ 2,406,284 $ 1,134,003 $ 339,554 $ 366,635 $ 4,246,476
Percent of total loans 56.7% 26.7% 8.0% 8.6% 100.0%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Six Months Ended
CHANGE IN THE Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Jun 30, 2015 Jun 30, 2014
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 75,365 $ 75,907 $ 74,371 $ 75,907 $ 74,258
Provision
Recoveries of loans previously charged off:
Commercial real estate 197 14 274 211 570
Multifamily real estate 113 113
Construction and land 843 108 472 951 704
One- to four-family real estate 93 6 204 99 392
Commercial business 499 178 286 677 579
Agricultural business, including secured by farmland 1,225 295 311 1,520 661
Consumer 236 46 58 282 340
3,206 647 1,605 3,853 3,246
Loans charged off:
Commercial real estate (64) (1,001) (64) (1,239)
Multifamily real estate
Construction and land (2) (207) (2) (207)
One- to four-family real estate (40) (75) (14) (115) (393)
Commercial business (327) (107) (260) (434) (998)
Agricultural business, including secured by farmland (246) (818) (1,064)
Consumer (563) (189) (184) (752) (357)
(1,242) (1,189) (1,666) (2,431) (3,194)
Net (charge-offs) recoveries 1,964 (542) (61) 1,422 52
Balance, end of period $ 77,329 $ 75,365 $ 74,310 $ 77,329 $ 74,310
Net (charge-offs) recoveries / Average loans outstanding 0.047% (0.014)% (0.002)% 0.035% 0.001%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
Specific or allocated loss allowance:
Commercial real estate $ 18,948 $ 19,103 $ 18,884 $ 18,784
Multifamily real estate 4,273 4,401 5,765 4,562
Construction and land 25,415 24,398 17,837 23,545
One- to four-family real estate 8,542 8,141 9,270 8,447
Commercial business 13,184 12,892 12,014 12,043
Agricultural business, including secured by farmland 2,679 3,732 2,824 2,821
Consumer 780 585 748 483
Total allocated 73,821 73,252 67,342 70,685
Unallocated 3,508 2,113 6,968 5,222
Total allowance for loan losses $ 77,329 $ 75,365 $ 74,310 $ 75,907
Allowance for loan losses / Total loans outstanding 1.82% 1.83% 1.97% 1.98%
Allowance for loan losses / Non-performing loans 332% 305% 376% 454%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial $ 1,072 $ 2,294 $ 2,692 $ 1,132
Multifamily 422
Construction and land 3,153 798 1,296 1,275
One- to four-family 5,662 7,111 9,354 8,834
Commercial business 179 418 925 537
Agricultural business, including secured by farmland 1,560 1,566 104 1,597
Consumer 861 1,836 1,205 1,187
12,487 14,023 15,998 14,562
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 1,835 1,847 993
Multifamily 570 578
Construction and land 5,951 6,724
One- to four-family 1,976 1,548 2,181 2,095
Commercial business 280
Consumer 472 15 293 79
10,804 10,712 3,747 2,174
Total non-performing loans 23,291 24,735 19,745 16,736
Real estate owned (REO) 6,105 4,922 4,388 3,352
Other repossessed assets 62 69 76
Total non-performing assets $ 29,396 $ 29,719 $ 24,202 $ 20,164
Total non-performing assets / Total assets 0.57% 0.57% 0.51% 0.43%
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT JUNE 30, 2015 Washington Oregon Idaho Total
Secured by real estate:
Commercial $ 1,039 $ 1,835 $ 33 $ 2,907
Multifamily 570 570
Construction and land:
One- to four-family construction 1,186 1,186
Residential land acquisition & development 750 750
Residential land improved lots 504 504
Commercial land improved 4,765 4,765
Commercial land unimproved 1,899 1,899
Total construction and land 9,104 9,104
One- to four-family 6,161 990 487 7,638
Commercial business 141 31 7 179
Agricultural business, including secured by farmland 774 786 1,560
Consumer 681 472 180 1,333
Total non-performing loans 8,796 13,788 707 23,291
Real estate owned (REO) 1,638 4,434 33 6,105
Other repossessed assets
Total non-performing assets at end of the period $ 10,434 $ 18,222 $ 740 $ 29,396
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Six Months Ended
REAL ESTATE OWNED Jun 30, 2015 Jun 30, 2014 Jun 30, 2015 Jun 30, 2014
Balance, beginning of period $ 4,922 $ 3,236 $ 3,352 $ 4,044
Additions from loan foreclosures 1,473 1,996 2,141 2,703
Additions from acquisitions 2,525
Additions from capitalized costs 298 33 298 37
Proceeds from dispositions of REO (511) (1,034) (2,249) (2,675)
Gain on sale of REO 105 157 220 316
Valuation adjustments in the period (182) (182) (37)
Balance, end of period $ 6,105 $ 4,388 $ 6,105 $ 4,388
DEPOSIT COMPOSITION Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
Non-interest-bearing $ 1,484,315 $ 1,504,768 $ 1,210,068 $ 1,298,866
Interest-bearing checking 477,492 472,033 437,810 439,480
Regular savings accounts 1,003,189 979,824 843,950 901,142
Money market accounts 566,369 584,743 490,105 488,946
Interest-bearing transaction & savings accounts 2,047,050 2,036,600 1,771,865 1,829,568
Interest-bearing certificates 765,780 778,049 936,986 770,516
Total deposits $ 4,297,145 $ 4,319,417 $ 3,918,919 $ 3,898,950
GEOGRAPHIC CONCENTRATION
OF DEPOSITS AT JUNE 30, 2015 Washington Oregon Idaho Total
Total deposits $ 2,858,101 $ 1,195,413 $ 243,631 $ 4,297,145
Percent of total deposits 66.5% 27.8% 5.7% 100.0%
INCLUDED IN TOTAL DEPOSITS Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
Public non-interest-bearing accounts $ 50,894 $ 44,195 $ 23,886 $ 39,381
Public interest-bearing transaction & savings accounts 65,136 58,023 69,664 63,473
Public interest-bearing certificates 33,577 35,326 48,180 35,346
Total public deposits $ 149,607 $ 137,544 $ 141,730 $ 138,200
Total brokered deposits $ 9,646 $ 4,800 $ 88,209 $ 4,799
OTHER BORROWINGS Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
Customer repurchase agreements / "Sweep accounts" $ 94,523 $ 97,020 $ 88,946 $ 77,185
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 FINANCIAL GROUP* March 6, 2015
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
* Amounts recorded in this table are preliminary estimates of fair value. Additional adjustments to the purchase price allocation may be required.
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 JUNE 30, 2015 Amount Ratio Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $ 778,340 16.21% $ 384,133 8.00% $ 480,167 10.00%
Tier 1 capital to risk-weighted assets 718,092 14.96% 288,100 6.00% 384,133 8.00%
Tier 1 leverage capital to average assets 718,092 13.89% 206,843 4.00% 258,554 5.00%
Common equity tier 1 capital 637,625 13.28% 216,075 4.50% 312,108 6.50%
Banner Bank:
Total capital to risk-weighted assets 685,529 14.83% 369,878 8.00% 462,348 10.00%
Tier 1 capital to risk-weighted assets 627,504 13.57% 277,409 6.00% 369,878 8.00%
Tier 1 leverage capital to average assets 627,504 12.76% 197,715 4.00% 247,143 5.00%
Common equity tier 1 capital 627,504 13.57% 208,057 4.50% 300,526 6.50%
Islanders Bank:
Total capital to risk-weighted assets 37,554 19.32% 15,101 8.00% 18,876 10.00%
Tier 1 capital to risk-weighted assets 35,296 18.07% 11,325 6.00% 15,101 8.00%
Tier 1 leverage capital to average assets 35,296 13.95% 10,280 4.00% 12,850 5.00%
Common equity tier 1 capital 35,296 18.07% 8,494 4.50% 12,269 6.50%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Six Months Ended
OPERATING PERFORMANCE Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Jun 30, 2015 Jun 30, 2014
Average loans $ 4,181,548 $ 3,920,255 $ 3,588,654 $ 4,051,623 $ 3,532,324
Average securities 582,681 600,806 689,287 591,693 688,530
Average interest earning cash 159,191 91,202 54,887 125,384 56,610
Average non-interest-earning assets 272,486 230,634 197,799 250,935 199,006
Total average assets $ 5,195,906 $ 4,842,897 $ 4,530,627 $ 5,019,635 $ 4,476,470
Average deposits $ 4,304,753 $ 3,997,763 $ 3,700,736 $ 4,152,106 $ 3,660,241
Average borrowings 228,387 232,147 279,266 230,257 270,869
Average non-interest-bearing other liabilities (1) 2,966 4,569 (4,237) 3,021 (5,154)
Total average liabilities 4,536,106 4,234,479 3,975,765 4,385,384 3,925,956
Total average stockholders' equity 659,800 608,418 554,862 634,251 550,514
Total average liabilities and equity $ 5,195,906 $ 4,842,897 $ 4,530,627 $ 5,019,635 $ 4,476,470
Interest rate yield on loans 4.90% 4.80% 4.83% 4.85% 4.85%
Interest rate yield on securities 1.99% 1.79% 1.92% 1.89% 1.94%
Interest rate yield on cash 0.27% 0.24% 0.31% 0.26% 0.31%
Interest rate yield on interest-earning assets 4.41% 4.31% 4.31% 4.36% 4.32%
Interest rate expense on deposits 0.16% 0.18% 0.21% 0.17% 0.21%
Interest rate expense on borrowings 1.49% 1.40% 1.18% 1.45% 1.21%
Interest rate expense on interest-bearing liabilities 0.23% 0.24% 0.28% 0.24% 0.28%
Interest rate spread 4.18% 4.07% 4.03% 4.12% 4.04%
Net interest margin 4.19% 4.09% 4.06% 4.14% 4.06%
Other operating income / Average assets 1.25% 1.15% 1.80% 1.20% 1.32%
Core other operating income / Average assets (2) 1.19% 1.10% 0.95% 1.15% 0.90%
Other operating expense / Average assets 3.68% 3.51% 3.40% 3.60% 3.33%
Core other operating expense / Average assets (2) 3.38% 3.37% 3.23% 3.38% 3.24%
Efficiency ratio (other operating expense / revenue) 70.61% 69.59% 59.94% 70.13% 64.09%
Efficiency ratio (core other operating expense / core operating revenue)(2) 65.61% 67.46% 66.80% 66.48% 67.81%
Return on average assets 1.02% 1.02% 1.50% 1.02% 1.24%
Return on average equity 8.05% 8.09% 12.28% 8.07% 10.09%
Return on average tangible equity (3) 8.40% 8.22% 12.32% 8.31% 10.12%
Average equity / Average assets 12.70% 12.56% 12.25% 12.64% 12.30%
(1) Average non-interest-bearing liabilities include fair value adjustments related to FHLB advances and Junior Subordinated Debentures.
(2) Core other operating income excludes net gain (loss) on sale of securities, fair value adjustments and acquisition bargain purchase gain. 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 goodwill and 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 Six Months Ended
Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Jun 30, 2015 Jun 30, 2014
Net interest income before provision for loan losses $ 51,457 $ 46,536 $ 43,808 $ 97,992 $ 86,147
Total other operating income 16,141 13,696 20,310 29,838 29,342
Total GAAP revenue 67,598 60,232 64,118 127,830 115,489
Exclude net (gain) loss on sale of securities 28 510 537 (35)
Exclude change in valuation of financial instruments carried at fair value (797) (1,050) (464) (1,847) (209)
Exclude acquisition bargain purchase gain (9,079) (9,079)
Revenue from core operations (non-GAAP) $ 66,829 $ 59,692 $ 54,575 $ 126,520 $ 106,166
OTHER OPERATING INCOME/EXPENSE FROM CORE OPERATIONS Quarters Ended Six Months Ended
Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Jun 30, 2015 Jun 30, 2014
Total other operating income (GAAP) $ 16,141 $ 13,696 $ 20,310 $ 29,838 $ 29,342
Exclude net (gain) loss on sale of securities 28 510 537 (35)
Exclude change in valuation of financial instruments carried at fair value (797) (1,050) (464) (1,847) (209)
Exclude acquisition bargain purchase gain (9,079) (9,079)
Other operating income from core operations (non-GAAP) $ 15,372 $ 13,156 $ 10,767 $ 28,528 $ 20,019
Total other operating expense (GAAP) $ 47,734 $ 41,914 $ 38,435 $ 89,649 $ 74,015
Exclude acquisition related costs (3,885) (1,648) (1,979) (5,533) (2,024)
Other operating expense from core operations (non-GAAP) $ 43,849 $ 40,266 $ 36,456 $ 84,116 $ 71,991
TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS Jun 30, 2015 Mar 31, 2015 Jun 30, 2014 Dec 31, 2014
Stockholders' equity (GAAP) $ 660,650 $ 651,313 $ 562,331 $ 582,888
Exclude goodwill and other intangible assets, net 26,891 27,258 3,892 2,831
Tangible common stockholders' equity (non-GAAP) $ 633,759 $ 624,055 $ 558,439 $ 580,057
Total assets (GAAP) $ 5,194,258 $ 5,211,372 $ 4,744,617 $ 4,723,163
Exclude goodwill and other intangible assets, net 26,891 27,258 3,892 2,831
Total tangible assets (non-GAAP) $ 5,167,367 $ 5,184,114 $ 4,740,725 $ 4,720,332
Tangible common stockholders' equity to tangible assets (non-GAAP) 12.26% 12.04% 11.78% 12.29%
TANGIBLE COMMON STOCKHOLDERS' EQUITY PER SHARE
Tangible common stockholders' equity $ 633,759 $ 624,055 $ 558,439 $ 580,057
Common shares outstanding at end of period 20,970,681 20,976,641 19,568,704 19,571,548
Common stockholders' equity (book value) per share (GAAP) $ 31.50 $ 29.82 $ 27.97 $ 27.63
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $ 30.22 $ 29.75 $ 28.54 $ 29.64

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

Source:Banner Corporation