×

Banner Corporation Earns $12.9 Million, or $0.62 Per Diluted Share, in Third Quarter 2015; Highlighted by Increased Revenues and Double Digit Year-over-Year Loan and Deposit Growth

WALLA WALLA, Wash., Oct. 21, 2015 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported net income in the third quarter of 2015 of $12.9 million, or $0.62 per diluted share, compared to $13.2 million, or $0.64 per diluted share, in the preceding quarter and $14.8 million, or $0.76 per diluted share, in the third quarter a year ago. The current quarter results were impacted by $2.2 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 $3.9 million of acquisition-related expenses which, net of taxes, reduced net income by $0.13 per diluted share.

In the nine months ended September 30, 2015, net income was $38.3 million, or $1.87 per diluted share, compared to $42.4 million, or $2.18 per diluted share, in the first nine months of 2014. Results for the first nine months of 2014 included 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. Acquisition-related expenses were $7.7 million, or $0.27 per diluted share, for the first nine months of 2015 compared to $1.5 million, or $0.05 per diluted share, for the first nine months of 2014.

"For the third quarter, Banner again generated strong revenue growth driven by balance sheet expansion, additional client acquisition, increased activity-based deposit fees and service charges and continued robust mortgage banking operations," said Mark J. Grescovich, President and Chief Executive Officer. "In addition to solid organic growth, compared to a year ago our successful acquisition of Siuslaw Financial Group, Inc. ("Siuslaw") in March 2015 and purchase of six branches from Umpqua Bank in June 2014 have meaningfully contributed to our increased revenues. Further, we are confident that our recently completed merger of AmericanWest Bank into Banner Bank will provide tremendous opportunities to continue to generate strong revenue growth going forward. We are focused on integrating the two banks and expect this merger, like our earlier acquisitions, will result in significant benefits to our expanding group of clients, communities, employees and shareholders."

Following completion of the merger with AmericanWest Bank, which closed on October 1, 2015, Banner Corporation will have approximately $9.9 billion in assets, $7.2 billion in loans and $8.0 billion in deposits, and Banner Bank will deploy its super community bank business model across five western states. In addition to the states of Washington, Oregon and Idaho, its expanded market area now also includes the states of California and Utah. The combined bank will benefit from a diversified geography with significant growth opportunities, including nine of the top twenty largest western cities by population.

Third Quarter 2015 Highlights

  • Net income was $12.9 million, or $0.62 per diluted share.
  • Annualized return on average assets was 0.97%.
  • Annualized return on average equity was 7.67%.
  • Revenues from core operations* increased 14% to $67.4 million, compared to $59.1 million in the third quarter a year ago.
  • Net interest margin was 4.14% for the current quarter, compared to 4.19% in the second quarter of 2015 and 4.07% a year ago.
  • Deposit fees and other service charges were $9.7 million, an increase of 2% compared to the preceding quarter and 18% year-over-year.
  • Revenues from mortgage banking operations were $4.4 million, a slight decrease compared to the preceding quarter but a 56% increase year-over-year.
  • Net loans increased by $126 million, or 3%, during the quarter, and increased 15% year-over-year.
  • Total deposits increased 10% to $4.39 billion compared to a year ago.
  • Core deposits increased by $126 million, or 4%, during the quarter, and increased 17% year-over-year.
  • Core deposits represented 83% of total deposits at September 30, 2015.
  • Common stockholders' tangible equity per share* increased to $30.75 at September 30, 2015, compared to $30.22 at the preceding quarter end and $29.12 a year ago.
  • The ratio of tangible common stockholders' equity to tangible assets* remained strong at 12.20% at September 30, 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 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 third quarter net interest income, before the provision for loan losses, increased slightly to $52.2 million, compared to $51.5 million in the preceding quarter and increased 11% compared to $47.1 million in the third quarter a year ago, largely reflecting strong client acquisition and significant organic loan and deposit growth, as well as the branch purchase and Siuslaw acquisition. In the first nine months of 2015, Banner's net interest income increased 13% to $150.2 million compared to $133.2 million in the first nine months of 2014.

"While we expected some margin compression from the immediately preceding quarter, we maintained a solid net interest margin in the third quarter," said Grescovich. "In the preceding quarter, the net interest margin was aided by a substantial credit recovery, which contributed $471,000 to net interest income and added four basis points to the margin. Both the second and third quarters of 2015 were impacted by the accretion of purchase accounting discounts from the Siuslaw acquisition which contributed approximately three basis points to the margin in each period." Banner's net interest margin was 4.14% for the third quarter of 2015, compared to 4.19% in the preceding quarter and 4.07% in the third quarter a year ago. In the first nine months of the year, Banner's net interest margin was 4.14% compared to 4.07% in the first nine months of 2014.

Earning asset yields decreased seven basis points compared to the preceding quarter but increased three basis points from the third quarter a year ago. Loan yields decreased 14 basis points compared to the preceding quarter that included the large credit recovery which added five basis points to loan yields, and were five basis points lower than the third quarter a year ago. Deposit costs remained unchanged compared to the preceding quarter and decreased by three basis points compared to the third quarter a year ago. The total cost of funds declined one basis point in the third quarter compared to the preceding quarter and declined three basis points compared to the third quarter a year ago.

"Our revenues from mortgage banking operations were again strong in the third quarter of 2015, reflecting Banner's increased market presence and our investment in this business line, coupled with strong home purchase activity in our markets," said Grescovich. Mortgage banking operations contributed $4.4 million to third quarter revenues compared to $4.7 million in the preceding quarter and $2.8 million in the third quarter of 2014. In the first nine months of 2015, mortgage banking operations contributed $13.2 million to revenues compared to $7.3 million in the same period a year earlier. Home purchase activity accounted for 71% of third quarter mortgage banking originations and 64% of mortgage originations in the first nine months of 2015.

Deposit fees and other service charges increased 2% to $9.7 million in the third quarter of 2015, compared to $9.6 million in the preceding quarter and increased 18% compared to $8.3 million in the third quarter a year ago. In the first nine months of 2015, deposit fees and other service charges increased 23% to $27.4 million compared to $22.2 million in the first nine months of 2014. The year-over-year increase reflects strong organic growth, as well as the branch purchase and Siuslaw acquisition, 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 to $67.4 million in the third quarter ended September 30, 2015, compared to $66.8 million in the preceding quarter and increased 14% compared to $59.1 million in the third quarter of 2014. In the first nine months of 2015, revenues from core operations* increased 17% to $193.9 million, compared to $165.3 million in the first nine months of 2014. Total revenues were $66.3 million for the quarter ended September 30, 2015, compared to $67.6 million in the preceding quarter and $60.6 million in the third quarter a year ago. In the first nine months of 2015, total revenues were $194.1 million, compared to $176.1 million in the same period a year ago.

Banner's third quarter 2015 results included a $1.1 million 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, results included a $797,000 net gain for fair value adjustments, which was partially offset by $28,000 in net loss on the sale of securities. In the third quarter of 2014, results included a $1.5 million net gain for fair value adjustments on financial instruments carried at fair value as well as a $6,000 gain on the sale of securities.

Banner's total other operating income, which includes the changes in the valuation of financial instruments and gains and losses on the sale of securities, was $14.1 million in the third quarter of 2015, compared to $16.1 million in the second quarter of 2015 and $13.5 million in the third quarter a year ago. In the first nine months of 2015, total other operating income was $43.9 million compared to $42.9 million in the first nine months of 2014 which also included the bargain purchase gain. 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 $15.2 million for the third quarter of 2015, compared to $15.4 million for the preceding quarter and $12.1 million for the third quarter a year ago. Year-to-date, other operating income from core operations* increased 36% to $43.7 million, compared to $32.1 million in the same period a year ago.

Total other operating expenses (non-interest expenses) were $46.7 million in the third quarter of 2015, compared to $47.7 million in the preceding quarter and $38.5 million in the third quarter of 2014. The year-over-year 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, occupancy and payment and card processing services reflecting increased transaction volume. Acquisition-related expenses were $2.2 million in the current quarter compared to $3.9 million in the preceding quarter and a $494,000 expense recovery in the third quarter one year ago. Year-to-date, total other operating expenses were $136.3 million, compared to $112.5 million in the same period one year ago, with acquisition-related expenses of $7.7 million, compared to $1.5 million in the comparable period one year ago. Acquisition-related expenses in the nine months ended September 30, 2015 included $5.9 million related to the acquisition of AmericanWest Bank which closed on October 1, 2015.

For the third quarter of 2015, Banner recorded $6.6 million in state and federal income tax expense for an effective tax rate of 33.9%, 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 third quarter credit quality metrics continue to reflect our moderate risk profile and our reserve levels remain adequate," said Grescovich. "As a result, similar to the same periods a year ago, no provision for loan losses was required during the quarter or nine months ended September 30, 2015 despite continued organic loan growth."

The allowance for loan losses was $77.3 million at September 30, 2015, or 1.77% of total loans outstanding and 329% of non-performing loans. Banner had net charge-offs of $9,000 in the third quarter compared to net recoveries of $2.0 million in the second quarter of 2015 and net recoveries of $21,000 in the third quarter a year ago. Non-performing loans were $23.5 million at September 30, 2015, compared to $23.3 million at June 30, 2015, and $19.8 million a year ago. Real estate owned and other repossessed assets totaled $6.4 million at September 30, 2015, compared to $6.1 million at June 30, 2015 and $4.0 million a year ago.

Banner's non-performing assets were 0.56% of total assets at September 30, 2015, compared to 0.57% at June 30, 2015 and 0.50% a year ago. Non-performing assets were $29.9 million at September 30, 2015, compared to $29.4 million at June 30, 2015 and $23.8 million a year ago.

Balance Sheet Review

Total assets increased by 2% to $5.31 billion at September 30, 2015, compared to $5.19 billion at June 30, 2015, and increased 12% compared to $4.76 billion a year ago, largely as a result of the Siuslaw acquisition but also reflecting continued strong organic growth. The total of securities and interest-bearing deposits held at other banks was $648.5 million at September 30, 2015, compared to $650.9 million at June 30, 2015 and $700.6 million a year ago. The average effective duration of Banner's securities portfolio was approximately 3.0 years at September 30, 2015.

"Net loans increased by $126 million, or 3%, during the quarter and increased 15% year-over-year due to strong organic growth, as well as the branch purchase and Siuslaw acquisition. Loan production remained solid, as did the regional economy, and we continue to see significant potential for growth in our loan origination pipelines," said Grescovich.

Net loans were $4.30 billion at September 30, 2015, compared to $4.17 billion at June 30, 2015, and $3.73 billion a year ago. The branch purchase and Siuslaw acquisition accounted for $88 million and $236 million, respectively, of the quarter-end loan portfolio. Commercial real estate and multifamily real estate loans increased 4% to $1.90 billion at September 30, 2015, compared to $1.82 billion at June 30, 2015, and increased 20% compared to $1.58 billion a year ago. Commercial business loans increased modestly to $812.1 million at September 30, 2015, compared to $811.6 million three months earlier and increased 12% compared to $728.1 million a year ago. Agricultural business loans increased 5% to $242.6 million at September 30, 2015, compared to $231.0 million three months earlier and increased slightly compared to $240.0 million a year ago. Total construction, land and land development loans increased 8% to $493.8 million at September 30, 2015, compared to $457.3 million at June 30, 2015, and increased 29% compared to $381.5 million a year earlier.

Banner's total deposits increased 2% to $4.39 billion at September 30, 2015, compared to $4.30 billion at June 30, 2015 and increased 10% compared to $3.99 billion a year ago. The branch purchase and Siuslaw acquisition accounted for $215 million and $336 million, respectively, of the deposit portfolio at September 30, 2015. Non-interest-bearing account balances increased 5% to $1.56 billion at September 30, 2015, compared to $1.48 billion three months earlier and increased 20% compared to $1.30 billion a year ago. Interest-bearing transaction and savings accounts increased 2% to $2.10 billion at September 30, 2015, compared to $2.05 billion three months earlier and increased 15% compared to $1.83 billion a year ago. Certificates of deposit decreased to $730.7 million at September 30, 2015, compared to $765.8 million at June 30, 2015, and decreased 14% compared to $853.0 million a year earlier. Brokered deposits totaled $10.1 million at September 30, 2015, compared to $9.6 million at June 30, 2015 and $41.2 million a year ago.

Banner's core deposits represented 83% of total deposits at September 30, 2015, compared to 79% of total deposits a year earlier. The cost of deposits was 0.16% for the quarter ended September 30, 2015, unchanged compared to the preceding quarter, and declined three basis points from 0.19% for the quarter ended September 30, 2014.

At September 30, 2015, total common stockholders' equity was $671.2 million, or $32.02 per share, compared to $660.7 million at June 30, 2015 and $573.4 million a year ago. Banner had 21.0 million shares of common stock outstanding at September 30, 2015, compared to 19.4 million shares one year earlier. On March 6, 2015, Banner issued 1.3 million shares in connection with the Siuslaw acquisition, which were valued at $44.02 per share and added $58.1 million to stockholders' equity. At September 30, 2015, tangible common stockholders' equity*, which excludes goodwill and other intangible assets, was $644.6 million, or 12.20% of tangible assets*, compared to $633.8 million, or 12.26% of tangible assets, at June 30, 2015, and $570.0 million, or 11.99% of tangible assets, a year ago. Banner's tangible book value per share* increased by 6% to $30.75 at September 30, 2015, compared to $29.12 per share a year ago. In conjunction with the AmericanWest Bank acquisition closing, Banner issued 13.23 million shares of common stock and non-voting common stock and $130 million in cash on October 1, 2015.

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. At September 30, 2015, Banner Corporation's common equity Tier 1 capital ratio was 12.82%, its Tier 1 leverage capital to average assets ratio was 13.85% and its total capital to risk-weighted assets ratio was 15.68%.

Conference Call

Banner will host a conference call on Thursday, October 22, 2015, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10072069, or at www.bannerbank.com.

About the Company

On October 1, 2015, Banner Corporation completed the acquisition of AmericanWest Bank which was merged into Banner Bank, a transformational merger bringing together two financially strong, well-respected institutions and creating a leading Western bank. Banner Corporation is now a $9.9 billion bank holding company operating two commercial banks in five Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the "SEC"), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "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 merger of Banner Bank and AmericanWest Bank might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for loan losses or writing down of assets; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior and net interest margin; (6) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon, Utah and California in particular; (12) the costs, effects and outcomes of litigation; (13) 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; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; and (16) 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 Nine Months Ended
(in thousands except shares and per share data) Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Sep 30, 2015 Sep 30, 2014
INTEREST INCOME:
Loans receivable $51,749 $51,078 $46,496 $149,192 $131,439
Mortgage-backed securities 1,307 1,275 1,459 3,609 4,376
Securities and cash equivalents 1,737 1,723 1,809 5,138 5,595
54,793 54,076 49,764 157,939 141,410
INTEREST EXPENSE:
Deposits 1,738 1,768 1,903 5,240 5,776
Federal Home Loan Bank advances 4 3 20 24 110
Other borrowings 47 48 43 137 133
Junior subordinated debentures 816 800 734 2,357 2,180
2,605 2,619 2,700 7,758 8,199
Net interest income before provision for loan losses 52,188 51,457 47,064 150,181 133,211
PROVISION FOR LOAN LOSSES
Net interest income 52,188 51,457 47,064 150,181 133,211
OTHER OPERATING INCOME:
Deposit fees and other service charges 9,746 9,563 8,289 27,435 22,237
Mortgage banking operations 4,426 4,703 2,842 13,238 7,282
Miscellaneous 1,039 1,106 946 3,064 2,577
15,211 15,372 12,077 43,737 32,096
Net gain (loss) on sale of securities (28) 6 (537) 41
Net change in valuation of financial instruments carried at fair value (1,113) 797 1,452 735 1,662
Acquisition bargain purchase gain 9,079
Total other operating income 14,098 16,141 13,535 43,935 42,878
OTHER OPERATING EXPENSE:
Salary and employee benefits 27,026 26,744 22,971 78,057 66,457
Less capitalized loan origination costs (3,747) (3,787) (3,204) (10,372) (8,680)
Occupancy and equipment 6,470 6,357 5,819 18,833 17,055
Information / computer data services 2,219 2,273 2,131 6,744 5,984
Payment and card processing services 4,168 3,742 3,201 10,926 8,462
Professional services 951 721 784 2,489 2,900
Advertising and marketing 1,959 2,198 2,454 5,767 4,878
Deposit insurance 713 625 607 1,905 1,820
State/municipal business and use taxes 475 455 475 1,383 1,022
Real estate operations (2) 167 (190) 190 (260)
Amortization of core deposit intangibles 286 367 531 1,268 1,460
Miscellaneous 3,972 3,987 3,410 11,416 9,884
44,490 43,849 38,989 128,606 110,982
Acquisition related costs (expense recovery) 2,207 3,885 (494) 7,741 1,530
Total other operating expense 46,697 47,734 38,495 136,347 112,512
Income before provision for income taxes 19,589 19,864 22,104 57,769 63,577
PROVISION FOR INCOME TAXES 6,642 6,615 7,285 19,440 21,221
NET INCOME $12,947 $13,249 $14,819 $38,329 $42,356
Earnings per share available to common shareholders:
Basic $0.62 $0.64 $0.76 $1.88 $2.19
Diluted $0.62 $0.64 $0.76 $1.87 $2.18
Cumulative dividends declared per common share $0.18 $0.18 $0.18 $0.54 $0.54
Weighted average common shares outstanding:
Basic 20,755,394 20,725,833 19,372,740 20,417,601 19,352,575
Diluted 20,821,377 20,789,533 19,419,344 20,467,609 19,385,933
Increase (decrease) in common shares outstanding (8,381) (5,960) 2,801 1,390,752 27,736
FINANCIAL CONDITION
(in thousands except shares and per share data) Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
ASSETS
Cash and due from banks $74,695 $85,598 $69,023 $71,077
Federal funds and interest-bearing deposits 60,544 98,376 82,702 54,995
Securities - trading 37,515 32,404 51,076 40,258
Securities - available for sale 418,254 387,876 433,745 411,021
Securities - held to maturity 132,150 132,197 133,069 131,258
Federal Home Loan Bank stock 6,767 6,120 29,106 27,036
Loans receivable:
Held for sale 3,136 1,154 6,949 2,786
Held for portfolio 4,369,458 4,245,322 3,799,746 3,831,034
Allowance for loan losses (77,320) (77,329) (74,331) (75,907)
4,295,274 4,169,147 3,732,364 3,757,913
Accrued interest receivable 17,966 16,792 17,062 15,279
Real estate owned held for sale, net 6,363 6,105 3,928 3,352
Property and equipment, net 102,881 101,141 91,291 91,185
Goodwill and other intangibles, net 26,605 26,891 3,362 2,831
Bank-owned life insurance 71,842 71,744 63,293 63,759
Other assets 61,454 59,867 48,662 53,199
$5,312,310 $5,194,258 $4,758,683 $4,723,163
LIABILITIES
Deposits:
Non-interest-bearing $1,561,516 $1,484,315 $1,304,720 $1,298,866
Interest-bearing transaction and savings accounts 2,095,476 2,047,050 1,833,404 1,829,568
Interest-bearing certificates 730,661 765,780 852,994 770,516
4,387,653 4,297,145 3,991,118 3,898,950
Advances from Federal Home Loan Bank at fair value 16,435 236 250 32,250
Customer repurchase agreements 88,083 94,523 67,605 77,185
Junior subordinated debentures at fair value 85,183 84,694 77,624 78,001
Accrued expenses and other liabilities 42,844 36,131 32,375 37,082
Deferred compensation 20,910 20,879 16,359 16,807
4,641,108 4,533,608 4,185,331 4,140,275
STOCKHOLDERS' EQUITY
Common stock 628,958 628,327 568,255 568,882
Retained earnings 41,269 32,096 6,074 14,264
Other components of stockholders' equity 975 227 (977) (258)
671,202 660,650 573,352 582,888
$5,312,310 $5,194,258 $4,758,683 $4,723,163
Common Shares Issued:
Shares outstanding at end of period 20,962,300 20,970,681 19,571,505 19,571,548
Common stockholders' equity per share (1) $32.02 $31.50 $29.30 $29.78
Common stockholders' tangible equity per share (1) (2) $30.75 $30.22 $29.12 $29.64
Common stockholders' tangible equity to tangible assets (2) 12.20% 12.26% 11.99% 12.29%
Consolidated Tier 1 leverage capital ratio 13.85% 13.89% 13.14% 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)
Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
LOANS (including loans held for sale):
Commercial real estate:
Owner occupied $635,146 $616,324 $546,333 $546,783
Investment properties 1,062,418 996,714 854,284 856,942
Multifamily real estate 198,874 205,276 183,944 167,524
Commercial construction 47,490 45,137 18,606 17,337
Multifamily construction 72,987 60,075 48,606 60,193
One- to four-family construction 246,715 230,554 214,141 219,889
Land and land development:
Residential 111,091 105,146 89,649 102,435
Commercial 15,517 16,419 10,505 11,152
Commercial business 812,070 811,623 728,088 723,964
Agricultural business including secured by farmland 242,556 230,964 240,048 238,499
One- to four-family real estate 536,325 542,961 527,271 539,894
Consumer:
Consumer secured by one- to four-family real estate 250,029 244,216 215,385 222,205
Consumer-other 141,376 141,067 129,835 127,003
Total loans outstanding $4,372,594 $4,246,476 $3,806,695 $3,833,820
Restructured loans performing under their restructured terms $23,981 $26,114 $30,387 $29,154
Loans 30 - 89 days past due and on accrual $4,152 $4,185 $6,925 $8,387
Total delinquent loans (including loans on non-accrual) $27,682 $27,476 $26,703 $25,124
Total delinquent loans / Total loans outstanding 0.63% 0.65% 0.70% 0.66%
GEOGRAPHIC CONCENTRATION
OF LOANS AT SEPTEMBER 30, 2015 Washington Oregon Idaho Other Total
Commercial real estate:
Owner occupied $387,403 $161,233 $66,418 $20,092 $635,146
Investment properties 535,080 201,709 58,019 267,610 1,062,418
Multifamily real estate 115,568 68,586 14,720 198,874
Commercial construction 40,546 1,876 5,068 47,490
Multifamily construction 51,254 15,029 6,147 557 72,987
One- to four-family construction 128,816 109,202 6,009 2,688 246,715
Land and land development:
Residential 55,824 53,023 2,080 164 111,091
Commercial 5,541 7,590 2,386 15,517
Commercial business 451,590 144,122 103,170 113,188 812,070
Agricultural business including secured by farmland 116,166 73,931 51,858 601 242,556
One- to four-family real estate 322,370 186,885 26,365 705 536,325
Consumer:
Consumer secured by one- to four-family real estate 156,001 76,590 16,472 966 250,029
Consumer-other 84,613 49,789 6,589 385 141,376
Total loans outstanding $2,450,772 $1,149,565 $365,301 $406,956 $4,372,594
Percent of total loans 56.0% 26.3% 8.4% 9.3% 100.0%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Nine Months Ended
CHANGE IN THE Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Sep 30, 2015 Sep 30, 2014
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $77,329 $75,365 $74,310 $75,907 $74,258
Provision
Recoveries of loans previously charged off:
Commercial real estate 375 197 94 587 664
Multifamily real estate 113 113
Construction and land 282 843 84 1,234 788
One- to four-family real estate 42 93 143 141 535
Commercial business 128 499 256 803 835
Agricultural business, including secured by farmland 146 1,225 587 1,666 1,248
Consumer 91 236 53 369 393
1,064 3,206 1,217 4,913 4,463
Loans charged off:
Commercial real estate (64) (64) (1,239)
Multifamily real estate (20) (20)
Construction and land (352) (2) (352) (207)
One- to four-family real estate (12) (40) (239) (127) (632)
Commercial business (312) (327) (83) (745) (1,081)
Agricultural business, including secured by farmland (246) (125) (1,064) (125)
Consumer (397) (563) (729) (1,148) (1,086)
(1,073) (1,242) (1,196) (3,500) (4,390)
Net (charge-offs) recoveries (9) 1,964 21 1,413 73
Balance, end of period $77,320 $77,329 $74,331 $77,320 $74,331
Net (charge-offs) recoveries / Average loans outstanding —% 0.047% 0.001% 0.034% 0.002%
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
Specific or allocated loss allowance:
Commercial real estate $19,640 $18,948 $19,505 $18,784
Multifamily real estate 4,363 4,273 4,892 4,562
Construction and land 27,274 25,415 20,779 23,545
One- to four-family real estate 7,937 8,542 9,136 8,447
Commercial business 12,765 13,184 12,677 12,043
Agricultural business, including secured by farmland 2,533 2,679 2,947 2,821
Consumer 804 780 675 483
Total allocated 75,316 73,821 70,611 70,685
Unallocated 2,004 3,508 3,720 5,222
Total allowance for loan losses $77,320 $77,329 $74,331 $75,907
Allowance for loan losses / Total loans outstanding 1.77% 1.82% 1.95% 1.98%
Allowance for loan losses / Non-performing loans 329% 332% 376% 454%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial $3,899 $1,072 $2,701 $1,132
Multifamily 397
Construction and land 2,793 3,153 1,285 1,275
One- to four-family 4,934 5,662 8,615 8,834
Commercial business 980 179 1,037 537
Agricultural business, including secured by farmland 228 1,560 229 1,597
Consumer 789 861 1,138 1,187
13,623 12,487 15,402 14,562
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 1,808 1,835 993
Multifamily 556 570
Construction and land 5,792 5,951
One- to four-family 1,285 1,976 2,777 2,095
Commercial business 5 301
Consumer 461 472 306 79
9,907 10,804 4,377 2,174
Total non-performing loans 23,530 23,291 19,779 16,736
Real estate owned (REO) 6,363 6,105 3,928 3,352
Other repossessed assets 69 76
Total non-performing assets $29,893 $29,396 $23,776 $20,164
Total non-performing assets / Total assets 0.56% 0.57% 0.50% 0.43%
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT SEPTEMBER 30, 2015 Washington Oregon Idaho Total
Secured by real estate:
Commercial $1,374 $4,307 $26 $5,707
Multifamily 556 556
Construction and land:
One- to four-family construction 1,175 1,175
Residential land acquisition & development 750 750
Residential land improved lots 493 493
Commercial land improved 4,618 4,618
Commercial land unimproved 1,549 1,549
Total construction and land 8,585 8,585
One- to four-family 5,356 480 383 6,219
Commercial business 133 784 68 985
Agricultural business, including secured by farmland 90 138 228
Consumer 686 489 75 1,250
Total non-performing loans 7,639 15,339 552 23,530
Real estate owned (REO) 2,176 4,187 6,363
Other repossessed assets
Total non-performing assets $9,815 $19,526 $552 $29,893
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Nine Months Ended
REAL ESTATE OWNED Sep 30, 2015 Sep 30, 2014 Sep 30, 2015 Sep 30, 2014
Balance, beginning of period $6,105 $4,388 $3,352 $4,044
Additions from loan foreclosures 1,085 135 3,226 2,837
Additions from acquisitions 2,525
Additions from capitalized costs 298 37
Proceeds from dispositions of REO (906) (860) (3,155) (3,633)
Gain on sale of REO 113 265 333 680
Valuation adjustments in the period (34) (216) (37)
Balance, end of period $6,363 $3,928 $6,363 $3,928
DEPOSIT COMPOSITION Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
Non-interest-bearing $1,561,516 $1,484,315 $1,304,720 $1,298,866
Interest-bearing checking 482,530 477,492 429,876 439,480
Regular savings accounts 1,030,177 1,003,189 899,868 901,142
Money market accounts 582,769 566,369 503,660 488,946
Interest-bearing transaction & savings accounts 2,095,476 2,047,050 1,833,404 1,829,568
Interest-bearing certificates 730,661 765,780 852,994 770,516
Total deposits $4,387,653 $4,297,145 $3,991,118 $3,898,950
GEOGRAPHIC CONCENTRATION
OF DEPOSITS AT SEPTEMBER 30, 2015 Washington Oregon Idaho Total
Total deposits $2,911,674 $1,224,132 $251,847 $4,387,653
Percent of total deposits 66.4% 27.9% 5.7% 100.0%
INCLUDED IN TOTAL DEPOSITS Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
Public non-interest-bearing accounts $48,814 $50,894 $34,535 $39,381
Public interest-bearing transaction & savings accounts 74,446 65,136 64,984 63,473
Public interest-bearing certificates 27,791 33,577 48,508 35,346
Total public deposits $151,051 $149,607 $148,027 $138,200
Total brokered deposits $10,095 $9,646 $41,249 $4,799
OTHER BORROWINGS Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
Customer repurchase agreements / "Sweep accounts" $88,083 $94,523 $67,605 $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 SEPTEMBER 30, 2015 Amount Ratio Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $791,763 15.68% $403,932 8.00% $504,915 10.00%
Tier 1 capital to risk-weighted assets 728,459 14.43% 302,949 6.00% 403,932 8.00%
Tier 1 leverage capital to average assets 728,459 13.85% 210,376 4.00% 262,970 5.00%
Common equity tier 1 capital to risk-weighted assets 647,505 12.82% 227,212 4.50% 328,195 6.50%
Banner Bank:
Total capital to risk-weighted assets 693,968 14.24% 389,903 8.00% 487,379 10.00%
Tier 1 capital to risk-weighted assets 632,854 12.98% 292,427 6.00% 389,903 8.00%
Tier 1 leverage capital to average assets 632,854 12.67% 199,804 4.00% 249,754 5.00%
Common equity tier 1 capital to risk-weighted assets 632,854 12.98% 219,320 4.50% 316,796 6.50%
Islanders Bank:
Total capital to risk-weighted assets 38,031 19.94% 15,260 8.00% 19,075 10.00%
Tier 1 capital to risk-weighted assets 35,754 18.74% 11,445 6.00% 15,260 8.00%
Tier 1 leverage capital to average assets 35,754 13.20% 10,833 4.00% 13,541 5.00%
Common equity tier 1 capital to risk-weighted assets 35,754 18.74% 8,584 4.50% 12,399 6.50%
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
Quarters Ended Nine Months Ended
OPERATING PERFORMANCE Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Sep 30, 2015 Sep 30, 2014
Average loans $4,313,839 $4,181,548 $3,834,007 $4,139,989 $3,633,990
Average securities 582,701 582,681 666,362 588,662 681,059
Average interest earning cash 109,445 159,191 85,090 120,013 66,208
Average non-interest-earning assets 276,761 272,486 213,045 259,641 203,432
Total average assets $5,282,746 $5,195,906 $4,798,504 $5,108,305 $4,584,689
Average deposits $4,379,887 $4,304,753 $3,995,451 $4,228,867 $3,773,206
Average borrowings 226,174 228,387 228,724 228,880 256,666
Average non-interest-bearing other liabilities (1) 6,731 2,966 2,026 4,275 (3,040)
Total average liabilities 4,612,792 4,536,106 4,226,201 4,462,022 4,026,832
Total average stockholders' equity 669,954 659,800 572,303 646,283 557,857
Total average liabilities and equity $5,282,746 $5,195,906 $4,798,504 $5,108,305 $4,584,689
Interest rate yield on loans 4.76% 4.90% 4.81% 4.82% 4.84%
Interest rate yield on securities 2.01% 1.99% 1.91% 1.93% 1.93%
Interest rate yield on cash 0.35% 0.27% 0.28% 0.29% 0.30%
Interest rate yield on interest-earning assets 4.34% 4.41% 4.31% 4.36% 4.32%
Interest rate expense on deposits 0.16% 0.16% 0.19% 0.17% 0.20%
Interest rate expense on borrowings 1.52% 1.49% 1.38% 1.47% 1.26%
Interest rate expense on interest-bearing liabilities 0.22% 0.23% 0.25% 0.23% 0.27%
Interest rate spread 4.12% 4.18% 4.06% 4.13% 4.05%
Net interest margin 4.14% 4.19% 4.07% 4.14% 4.07%
Other operating income / Average assets 1.06% 1.25% 1.12% 1.15% 1.25%
Core other operating income / Average assets (2) 1.14% 1.19% 1.00% 1.14% 0.94%
Other operating expense / Average assets 3.51% 3.68% 3.18% 3.57% 3.28%
Core other operating expense / Average assets (2) 3.34% 3.38% 3.22% 3.37% 3.24%
Efficiency ratio (other operating expense / revenue) 70.45% 70.61% 63.52% 70.24% 63.89%
Efficiency ratio (core other operating expense / core operating revenue)(2) 66.01% 65.61% 65.93% 66.32% 67.14%
Return on average assets 0.97% 1.02% 1.23% 1.00% 1.24%
Return on average equity 7.67% 8.05% 10.27% 7.93% 10.15%
Return on average tangible equity (3) 7.99% 8.40% 10.34% 8.20% 10.20%
Average equity / Average assets 12.68% 12.70% 11.93% 12.65% 12.17%
(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 last page of this press release.

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 Nine Months Ended
Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Sep 30, 2015 Sep 30, 2014
Net interest income before provision for loan losses $52,188 $51,457 $47,064 $150,181 $133,211
Total other operating income 14,098 16,141 13,535 43,935 42,878
Total GAAP revenue 66,286 67,598 60,599 194,116 176,089
Exclude net (gain) loss on sale of securities 28 (6) 537 (41)
Exclude change in valuation of financial instruments carried at fair value 1,113 (797) (1,452) (735) (1,662)
Exclude acquisition bargain purchase gain (9,079)
Revenue from core operations (non-GAAP) $67,399 $66,829 $59,141 $193,918 $165,307

OTHER OPERATING INCOME/EXPENSE FROM CORE OPERATIONS Quarters Ended Nine Months Ended
Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Sep 30, 2015 Sep 30, 2014
Total other operating income (GAAP) $14,098 $16,141 $13,535 $43,935 $42,878
Exclude net (gain) loss on sale of securities 28 (6) 537 (41)
Exclude change in valuation of financial instruments carried at fair value 1,113 (797) (1,452) (735) (1,662)
Exclude acquisition bargain purchase gain (9,079)
Other operating income from core operations (non-GAAP) $15,211 $15,372 $12,077 $43,737 $32,096
Total other operating expense (GAAP) $46,697 $47,734 $38,495 $136,347 $112,512
Exclude acquisition related costs (2,207) (3,885) 494 (7,741) (1,530)
Other operating expense from core operations (non-GAAP) $44,490 $43,849 $38,989 $128,606 $110,982

TANGIBLE COMMON STOCKHOLDERS' EQUITY TO TANGIBLE ASSETS Sep 30, 2015 Jun 30, 2015 Sep 30, 2014 Dec 31, 2014
Stockholders' equity (GAAP) $671,202 $660,650 $573,352 $582,888
Exclude goodwill and other intangible assets, net 26,605 26,891 3,362 2,831
Tangible common stockholders' equity (non-GAAP) $644,597 $633,759 $569,990 $580,057
Total assets (GAAP) $5,312,310 $5,194,258 $4,758,683 $4,723,163
Exclude goodwill and other intangible assets, net 26,605 26,891 3,362 2,831
Total tangible assets (non-GAAP) $5,285,705 $5,167,367 $4,755,321 $4,720,332
Tangible common stockholders' equity to tangible assets (non-GAAP) 12.20% 12.26% 11.99% 12.29%
TANGIBLE COMMON STOCKHOLDERS' EQUITY PER SHARE
Tangible common stockholders' equity $644,597 $633,759 $569,990 $580,057
Common shares outstanding at end of period 20,962,300 20,970,681 19,571,505 19,571,548
Common stockholders' equity (book value) per share (GAAP) $32.02 $29.82 $27.97 $27.63
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $30.75 $30.22 $29.12 $29.64

CONTACT: Mark J. Grescovich, President & CEO Lloyd W. Baker, CFO (509) 527-3636

Source:Banner Corporation