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Banner Corporation Earns $21.0 Million, or $0.61 per Diluted Share, in the Second Quarter of 2016; Second Quarter Highlighted by Strong Revenue Growth

WALLA WALLA, Wash., July 26, 2016 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported strong revenue generation propelled by growth from recent acquisitions that contributed to solid second quarter earnings. Net income in the second quarter of 2016 increased to $21.0 million, or $0.61 per diluted share, compared to $17.8 million, or $0.52 per diluted share, in the preceding quarter and $13.2 million, or $0.64 per diluted share, in the second quarter a year ago. The current quarter results were impacted by $2.4 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.05 per diluted share, and the preceding quarter results were impacted by $6.8 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.13 per diluted share.

In the first six months of 2016, net income increased to $38.7 million, or $1.14 per diluted share, compared to $25.4 million, or $1.25 per diluted share, in the first six months of 2015.

“Our second quarter performance clearly demonstrates the positive contribution from the AmericanWest acquisition and shows that our strategic plan is effective as we continue to build shareholder value,” stated Mark J. Grescovich, President and Chief Executive Officer. “The merger integration continues to move along smoothly with the final stages of our electronic banking systems conversion scheduled for the third quarter. This strategic combination is allowing us to deploy our super community bank model through a strengthened presence in Washington, Oregon and Idaho, as well as expanded opportunities in attractive growth markets in California and Utah. As we deploy our super community bank business model across five western states, the combined bank is benefiting from our increased scale and diversified geographic footprint with important economic drivers and significant growth opportunities.”

At June 30, 2016, Banner Corporation had $9.92 billion in assets, $7.24 billion in net loans and $7.92 billion in deposits. It operates 190 branch offices located in nine of the top 20 largest western Metropolitan Statistical Areas by population.

Second Quarter 2016 Highlights

  • Net income increased to $21.0 million, compared to $17.8 million in the preceding quarter and increased 58% compared to $13.2 million in the second quarter of 2015.
  • Acquisition-related expenses were $2.4 million which, net of tax benefit, reduced net income by $0.05 per diluted share for the quarter ended June 30, 2016.
  • Revenues from core operations* increased to $114.4 million, compared to $111.0 million in the preceding quarter and increased 71% compared to $66.8 million in the second quarter a year ago.
  • Net interest margin expanded to 4.20% for the current quarter, compared to 4.13% in the first quarter of 2016 and 4.19% a year ago.
  • Excluding acquisition accounting adjustments, the net interest margin before discount accretion* was 4.01%, the same as in the preceding quarter and was 4.15% in the second quarter a year ago.
  • Deposit fees and other service charges were $12.2 million, compared to $11.8 million in the preceding quarter and $9.6 million a year ago.
  • Revenues from mortgage banking operations were $6.6 million compared to $5.6 million in the preceding quarter and $4.7 million a year ago.
  • Provision for loan losses was $2.0 million.
  • Net loans increased by $3.08 billion, or 74% year-over-year and increased $136.8 million during the current quarter.
  • Total deposits increased by $3.62 billion, or 84%, compared to a year ago and decreased $110.0 million during the current quarter.
  • Core deposits increased by $3.18 billion, or 90%, year-over-year, and represented 85% of total deposits at June 30, 2016.
  • Declared quarterly dividend to shareholders of $0.21 per share.
  • Common stockholders' tangible equity per share* increased to $30.86 at June 30, 2016, compared to $30.38 at the preceding quarter end and $30.22 a year ago.
  • The ratio of tangible common stockholders' equity to tangible assets* remained strong at 11.00% at June 30, 2016 compared to 10.98% at the preceding quarter end and 12.26% a year ago.

*Revenues from core operations and non-interest income from core operations (both of which exclude fair value adjustments and gains and losses on the sale of securities), acquisition accounting impact on net interest margin, non-interest expense from core operations (which excludes acquisition-related costs), the adjusted allowance for loan losses (which includes net loan discounts on acquired loans) 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 three pages of this press release.

Acquisition of AmericanWest Bank

Effective October 1, 2015, Banner completed the acquisition of Starbuck Bancshares, Inc. ("Starbuck") and its wholly owned subsidiary AmericanWest Bank. The merger was accounted for using the acquisition method of accounting. Accordingly, the acquired assets (including identifiable intangible assets) and assumed liabilities of Starbuck were recognized at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a post-closing measurement period. During the second quarter of 2016, post-closing adjustments reduced goodwill by $228,000 and totaled $3.2 million in the first six months of 2016.

In addition to the acquisition of AmericanWest Bank, the acquisition of Siuslaw Financial Group and its wholly-owned subsidiary Siuslaw Bank ("Siuslaw") on March 6, 2015 had a significant impact on the current and historical operating results of Banner. For additional details regarding acquisitions and merger related expenses, see the tables under Business Combinations on page 11 of this press release.

Income Statement Review

Banner’s second quarter net interest income, before the provision for loan losses, increased to $93.1 million, compared to $91.0 million in the preceding quarter. The second quarter 2016 net interest income increased 81% compared to $51.5 million in the second quarter a year ago, largely reflecting the acquisition of AmericanWest Bank and continued client acquisition. In the first six months of 2016, Banner’s net interest income, before the provision for loan losses, increased 88% to $184.2 million compared to $98.0 million in the first six months of 2015.

“Our net interest margin expanded seven basis points compared to the preceding quarter and was virtually unchanged compared to a year ago as a result of increased accretion of acquisition accounting discounts,” said Grescovich. “By contrast, excluding the accretion impact of acquisition accounting, the net interest margin before discount accretion was unchanged compared to the preceding quarter, but declined by fourteen basis points compared to a year ago.”

Net interest margin is enhanced by the amortization of acquisition accounting discounts on purchased loans acquired in the acquisitions, which are accreted into loan interest income, as well as by net premiums on non-market-rate certificate of deposit liabilities assumed, which are amortized as a reduction to deposit interest expense. Banner's net interest margin was 4.20% for the second quarter of 2016, which included 14 basis points as a result of accretion from acquisition accounting loan discounts, two basis points from the amortization of deposit premiums and three basis points as a result of the impact of the net loan acquisition discounts on average earning assets from both the AmericanWest Bank and Siuslaw acquisitions, compared to a net interest margin of 4.13% in the preceding quarter and 4.19% in the second quarter a year ago. Excluding the effects of acquisition accounting, the net interest margin before discount accretion was 4.01% in the second quarter and the preceding quarter and 4.15% in the second quarter a year ago. The decline compared to a year earlier primarily reflects lower average yields on the loans acquired in the AmericanWest acquisition as well as the proportionally larger size of the securities portfolio following that acquisition.

Average interest-earning asset yields increased six basis points to 4.38% compared to 4.32% for the preceding quarter and decreased three basis points from 4.41% for the second quarter a year ago. Loan yields increased eight basis points compared to the preceding quarter and decreased four basis points from the second quarter a year ago. The accretion of discounts and related balance sheet impact on the loans acquired through the acquisitions added 18 basis points to reported loan yields for the quarter. Deposit costs decreased one basis point compared to the preceding quarter and decreased two basis points compared to the second quarter a year ago. Amortization of acquisition accounting net premiums on certificates of deposit reduced the cost of deposits by two basis points in the second quarter 2016. The total cost of funds remained unchanged at 0.20% during the second quarter compared to the preceding quarter and declined three basis points compared to 0.23% for the second quarter a year ago.

“Our credit quality metrics continue to reflect our moderate risk profile,” said Grescovich. “However, as expected, due to loan growth and the post-purchase renewal-driven migration of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses during the second quarter. This compares to no provision during the preceding quarter or year ago quarter.

“Revenues from mortgage banking remain strong, as home purchase and refinance activity continues to flourish in our markets and Banner’s increased market presence and investment in this business line continues to produce solid results,” said Grescovich. "In addition, for the quarter we recognized $1.0 million of gains on the sale of multifamily loans." Mortgage banking revenues including gains on multifamily loan sales increased 17% to $6.6 million in the second quarter compared to $5.6 million in the preceding quarter and increased 41% compared to $4.7 million in the second quarter of 2015. Home purchase activity accounted for 66% of second quarter one- to four-family mortgage banking loan originations. In the first six months of 2016, mortgage banking revenues increased 39% to $12.3 million compared to $8.8 million in the same period one year ago. Gains on the sale of multifamily loans were $1.7 million for the first six months of 2016.

Deposit fees and other service charges increased 3% to $12.2 million in the second quarter compared to $11.8 million in the preceding quarter and increased 28% compared to $9.6 million in the second quarter a year ago. Year-to-date, deposit fees and other service charges increased 36% to $24.0 million compared to $17.7 million in the first six months of 2015.

Total revenues were $113.7 million for the quarter ended June 30, 2016, compared to $111.0 million in the preceding quarter and $67.6 million in the second quarter a year ago. Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) increased 3% to $114.4 million in the second quarter ended June 30, 2016, compared to $111.0 million in the preceding quarter and increased 71% compared to $66.8 million in the second quarter of 2015. Total revenues for the first six months of 2016 were $224.7 million compared to $127.8 million in the first six months of 2015, with the significant increase largely attributable to the acquisition of AmericanWest Bank. Year-to-date, revenues from core operations* increased 78% to $225.4 million compared to $126.5 million in the first six months of 2015.

Banner’s second quarter 2016 results included a $377,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, as well as a $380,000 net loss on the sale of securities. In the preceding quarter, results included a $29,000 net gain for fair value adjustments, as well as a $21,000 net gain on the sale of securities. In the second quarter a year ago, 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.

Total non-interest income, which includes the changes in the valuation of financial instruments carried at fair value and gains and losses on the sale of securities, was $20.5 million in the second quarter of 2016, compared to $20.0 million in the first quarter of 2016 and $16.1 million in the second quarter a year ago. Non-interest income from core operations,* which excludes gains and losses on sale of securities and net changes in the valuation of financial instruments, was $21.3 million, compared to $19.9 million for the second quarter of 2016 and $15.4 million in the second quarter a year ago. For the first six months of the year, Banner’s total non-interest income was $40.5 million compared to $29.8 million in the same period a year ago and non-interest income from core operations* was $41.2 million compared to $28.5 million for the same periods, respectively.

Banner’s total non-interest expenses were $79.9 million in the second quarter of 2016, compared to $84.0 million in the preceding quarter and $47.7 million in the second quarter of 2015. The year-over-year increase in non-interest expenses was largely attributable to acquisition-related expenses and incremental costs associated with operating the 98 branches and the related operations acquired in the AmericanWest Bank merger on October 1, 2015, as well as generally increased compensation, occupancy and payment and card processing services reflecting increased transaction volume. There were $2.4 million in acquisition-related expenses in the current quarter compared to $6.8 million in the preceding quarter and $3.9 million in the second quarter a year ago. In addition, during the quarter, $1.4 million of expense was accrued for product benefits that we have determined were not properly credited to certain clients in prior periods. The errors were the result of systems processes that have since been rectified and primarily related to bonus interest accruals over a six year period. In the first six months of 2016, total non-interest expenses were $163.9 million compared to $89.6 million in the first six months of 2015.

For the second quarter of 2016, Banner recorded $10.8 million in state and federal income tax expense for an effective tax rate of 34.1%, which reflects normal statutory tax rates reduced by the effect of tax-exempt income and certain tax credits.

Balance Sheet Review

Banner’s total assets increased by 91% to $9.92 billion at June 30, 2016, compared to $5.19 billion a year ago, largely as a result of the AmericanWest Bank acquisition but also due to organic growth. Total assets were $9.75 billion at March 31, 2016. The total of securities and interest-bearing deposits held at other banks was $1.54 billion at June 30, 2016, compared to $1.59 billion at March 31, 2016 and $650.9 million a year ago. The increase in the securities portfolio compared to a year earlier is primarily a result of securities held by AmericanWest at the time of the merger. The average effective duration of Banner's securities portfolio was approximately 2.6 years at June 30, 2016 compared to 2.9 years at March 31, 2016.

“Net loans increased by $3.08 billion, or 74%, year-over-year due to the AmericanWest Bank acquisition and strong organic growth. Net loans increased 2% compared to the preceding quarter end. Loan production remains solid, as does the regional economy, and we continue to see significant potential for growth in our loan origination pipelines,” said Grescovich.

Net loans increased 74% to $7.24 billion at June 30, 2016, compared to $4.17 billion a year ago. Net loans were $7.11 billion at March 31, 2016. Commercial real estate and multifamily real estate loans increased 2% to $3.49 billion at June 30, 2016, compared to $3.44 billion at March 31, 2016, and increased 92% compared to $1.82 billion a year ago. Commercial business loans increased 1% to $1.23 billion at June 30, 2016, compared to $1.22 billion three months earlier and increased 52% compared to $811.6 million a year ago. Agricultural business loans increased 9% to $370.5 million at June 30, 2016, compared to $340.4 million three months earlier and increased 60% compared to $231.0 million a year ago. Total construction, land and land development loans increased 13% to $713.3 million at June 30, 2016, compared to $632.1 million at March 31, 2016, and increased 56% compared to $457.3 million a year earlier.

Banner’s total deposits were $7.92 billion at June 30, 2016, a slight decline compared to $8.03 billion at March 31, 2016, due to seasonal factors as well as the managed run off of certificates of deposit, but increased 84% compared to $4.30 billion a year ago. In connection with certain product changes earlier in the year, Banner converted approximately $420 million of former AmericanWest Bank interest-bearing deposits to non-interest-bearing deposits during the preceding quarter. As a result of the product changes, in addition to organic growth, non-interest-bearing account balances increased 104% to $3.02 billion at June 30, 2016, compared to $1.48 billion a year ago. Interest-bearing transaction and savings accounts increased 80% to $3.69 billion compared to $2.05 billion a year ago. Certificates of deposit increased 58% to $1.21 billion at June 30, 2016, compared to $765.8 million a year earlier. Brokered deposits totaled $93.0 million at June 30, 2016, compared to $135.6 million at March 31, 2016 and $9.6 million a year ago.

Core deposits represented 85% of total deposits at June 30, 2016, compared to 84% of total deposits at March 31, 2016 and 82% of total deposits a year earlier. The cost of deposits was 0.14% for the quarter ended June 30, 2016, a one basis point decrease from 0.15% in the preceding quarter, and declined two basis points from 0.16% for the quarter ended June 30, 2015.

At June 30, 2016, total common stockholders' equity was $1.34 billion, or $38.97 per share, compared to $1.32 billion at March 31, 2016 and $660.7 million a year ago. The year-over-year increase was mostly due to 13.23 million shares of voting common and non-voting common stock issued on October 1, 2015 in connection with the AmericanWest Bank acquisition, which were valued at $47.67 per share and increased stockholders’ equity by $630.7 million. At June 30, 2016, tangible common stockholders' equity*, which excludes goodwill and other intangible assets, was $1.06 billion, or 11.00% of tangible assets*, compared to $1.04 billion, or 10.98% of tangible assets, at March 31, 2016, and $633.8 million, or 12.26% of tangible assets, a year ago. Banner's tangible book value per share* increased to $30.86 at June 30, 2016, compared to $30.22 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 Basel III and Dodd Frank regulatory standards. At June 30, 2016, Banner Corporation's common equity Tier 1 capital ratio was 11.85%, its Tier 1 leverage capital to average assets ratio was 11.43%, and its total capital to risk-weighted assets ratio was 13.51%.

Credit Quality

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, of which a portion reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value and as a result no allowance for loan and lease losses is recorded for acquired loans at the acquisition date. Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisitions of AmericanWest Bank and Siuslaw.

The allowance for loan losses was $81.3 million at June 30, 2016, or 1.11% of total loans outstanding and 321% of non-performing loans compared to $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 $1.1 million in the second quarter compared to net recoveries of $189,000 in the first quarter of 2016 and net recoveries of $2.0 million in the second quarter a year ago. However, primarily as a result of loan growth and the post-purchase renewal-driven migration of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses in the current quarter. If the allowance for loan losses were grossed up for the remaining loan discount, the adjusted allowance for loan losses to adjusted loans would have been 1.63% as of June 30, 2016. Non-performing loans were $25.3 million at June 30, 2016, compared to $15.6 million at March 31, 2016 and $23.2 million a year ago. Real estate owned and other repossessed assets decreased to $6.4 million at June 30, 2016, compared to $7.4 million at March 31, 2016, but increased slightly compared to $6.1 million a year ago.

Banner's non-performing assets were 0.32% of total assets at June 30, 2016, compared to 0.24% at March 31, 2016 and 0.57% a year ago. Non-performing assets were $31.7 million at June 30, 2016, compared to $23.0 million at March 31, 2016 and $29.4 million a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $45.4 million at June 30, 2016 compared to $53.3 million at March 31, 2016 and $5.5 million a year ago.

Conference Call

Banner will host a conference call on Wednesday, July 27, 2016, 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 week at (877) 344-7529 using access code 10088761, 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 that brought together two financially strong, well-respected institutions and created 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 and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. 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 and could negatively affect Banner's operating and stock price performance.

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; (16) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (17) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.

RESULTS OF OPERATIONS Quarters Ended Six months ended
(in thousands except shares and per share data) Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
INTEREST INCOME:
Loans receivable $88,935 $86,958 $51,078 $175,893 $97,443
Mortgage-backed securities 5,274 5,390 1,275 10,664 2,302
Securities and cash equivalents 3,112 2,953 1,723 6,065 3,400
97,321 95,301 54,076 192,622 103,145
INTEREST EXPENSE:
Deposits 2,771 2,946 1,768 5,717 3,501
Federal Home Loan Bank advances 339 279 3 618 20
Other borrowings 78 75 48 153 91
Junior subordinated debentures 985 958 800 1,944 1,541
4,173 4,258 2,619 8,432 5,153
Net interest income before provision for loan losses 93,148 91,043 51,457 184,190 97,992
PROVISION FOR LOAN LOSSES 2,000 2,000
Net interest income 91,148 91,043 51,457 182,190 97,992
NON-INTEREST INCOME:
Deposit fees and other service charges 12,213 11,818 9,563 24,031 17,689
Mortgage banking operations 6,625 5,643 4,703 12,268 8,812
Bank owned life insurance 1,128 1,185 453 2,313 891
Miscellaneous 1,328 1,263 653 2,592 1,136
21,294 19,909 15,372 41,204 28,528
Net gain (loss) on sale of securities (380) 21 (28) (359) (537)
Net change in valuation of financial instruments carried at fair value (377) 29 797 (348) 1,847
Total non-interest income 20,537 19,959 16,141 40,497 29,838
NON-INTEREST EXPENSE:
Salary and employee benefits 45,175 46,564 26,744 91,738 51,031
Less capitalized loan origination costs (4,907) (4,250) (3,787) (9,157) (6,625)
Occupancy and equipment 11,052 10,388 6,357 21,440 12,363
Information / computer data services 4,852 4,920 2,273 9,772 4,526
Payment and card processing services 5,501 4,785 3,742 10,286 6,758
Professional services 865 2,614 721 3,479 1,536
Advertising and marketing 2,474 1,734 2,198 4,207 3,808
Deposit insurance 1,311 1,338 625 2,649 1,192
State/municipal business and use taxes 770 838 455 1,608 908
Real estate operations 137 397 167 534 191
Amortization of core deposit intangibles 1,808 1,808 367 3,615 983
Miscellaneous 8,437 6,085 3,987 14,526 7,445
77,475 77,221 43,849 154,697 84,116
Acquisition related costs 2,412 6,813 3,885 9,224 5,533
Total non-interest expense 79,887 84,034 47,734 163,921 89,649
Income before provision for income taxes 31,798 26,968 19,864 58,766 38,181
PROVISION FOR INCOME TAXES 10,841 9,194 6,615 20,035 12,798
NET INCOME $20,957 $17,774 $13,249 $38,731 $25,383
Earnings per share available to common shareholders:
Basic $0.62 $0.52 $0.64 $1.14 $1.25
Diluted $0.61 $0.52 $0.64 $1.14 $1.25
Cumulative dividends declared per common share $0.21 $0.21 $0.18 $0.42 $0.36
Weighted average common shares outstanding:
Basic 34,069,887 34,023,800 20,725,833 34,053,105 20,245,905
Diluted 34,117,151 34,103,727 20,789,533 34,090,647 20,301,448
Increase (decrease) in common shares outstanding 129,109 (20,804) (5,960) 108,305 1,399,133


FINANCIAL CONDITION Percentage Change
(in thousands except shares and per share data) Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015 Prior Qtr Prior Yr Qtr
ASSETS
Cash and due from banks $158,446 $153,706 $117,657 $85,598 3.1% 85.1%
Interest-bearing deposits 76,210 106,864 144,260 98,376 (28.7)% (22.5)%
Total cash and cash equivalents 234,656 260,570 261,917 183,974 (9.9)% 27.5%
Securities - trading 33,753 33,994 34,134 32,404 (0.7)% 4.2%
Securities - available for sale 1,177,757 1,199,279 1,138,573 387,876 (1.8)% 203.6%
Securities - held to maturity 254,666 246,320 220,666 132,197 3.4% 92.6%
Federal Home Loan Bank stock 23,347 13,347 16,057 6,120 74.9% 281.5%
Loans held for sale 113,230 47,523 44,712 1,154 138.3% nm
Loans receivable 7,325,925 7,185,999 7,314,504 4,245,322 1.9% 72.6%
Allowance for loan losses (81,318) (78,197) (78,008) (77,329) 4.0% 5.2%
Net loans 7,244,607 7,107,802 7,236,496 4,167,993 1.9% 73.8%
Accrued interest receivable 30,052 30,674 29,627 16,792 (2.0)% 79.0%
Real estate owned held for sale, net 6,147 7,207 11,627 6,105 (14.7)% 0.7%
Property and equipment, net 167,597 168,807 167,604 101,141 (0.7)% 65.7%
Goodwill 244,583 244,811 247,738 21,148 (0.1)% nm
Other intangibles, net 33,724 35,598 37,472 5,743 (5.3)% nm
Bank-owned life insurance 158,001 156,928 156,865 71,744 0.7% 120.2%
Other assets 194,085 192,734 192,810 59,867 0.7% 224.2%
Total assets $9,916,205 $9,745,594 $9,796,298 $5,194,258 1.8% 90.9%
LIABILITIES
Deposits:
Non-interest-bearing $3,023,986 $3,036,330 $2,619,618 $1,484,315 (0.4)% 103.7%
Interest-bearing transaction and savings accounts 3,687,118 3,705,658 4,081,580 2,047,050 (0.5)% 80.1%
Interest-bearing certificates 1,208,671 1,287,873 1,353,870 765,780 (6.1)% 57.8%
Total deposits 7,919,775 8,029,861 8,055,068 4,297,145 (1.4)% 84.3%
Advances from Federal Home Loan Bank at fair value 325,383 75,400 133,381 236 331.5% nm
Customer repurchase agreements and other borrowings 112,308 106,132 98,325 94,523 5.8% 18.8%
Junior subordinated debentures at fair value 93,298 92,879 92,480 84,694 0.5% 10.2%
Accrued expenses and other liabilities 87,441 81,485 76,511 36,131 7.3% 142.0%
Deferred compensation 39,483 39,682 40,474 20,879 (0.5)% 89.1%
Total liabilities 8,577,688 8,425,439 8,496,239 4,533,608 1.8% 89.2%
SHAREHOLDERS' EQUITY
Common stock 1,263,085 1,262,050 1,261,174 628,327 0.1% 101.0%
Retained earnings 63,967 50,230 39,615 32,096 27.3% 99.3%
Other components of shareholders' equity 11,465 7,875 (730) 227 45.6% nm
Total shareholders' equity 1,338,517 1,320,155 1,300,059 660,650 1.4% 102.6%
Total liabilities and shareholders' equity $9,916,205 $9,745,594 $9,796,298 $5,194,258 1.8% 90.9%
Common Shares Issued:
Shares outstanding at end of period 34,350,560 34,221,451 34,242,255 20,970,681
Common shareholders' equity per share (1) $38.97 $38.58 $37.97 $31.50
Common shareholders' tangible equity per share (1) (2) $30.86 $30.38 $29.64 $30.22
Common shareholders' tangible equity to tangible assets (2) 11.00% 10.98% 10.67% 12.26%
Consolidated Tier 1 leverage capital ratio 11.85% 11.28% 11.06% 13.89%


(1)Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2)Common shareholders' 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 three pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Percentage Change
LOANS Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015 Prior Qtr Prior Yr Qtr
Commercial real estate:
Owner occupied $1,351,015 $1,328,034 $1,327,807 $616,324 1.7% 119.2%
Investment properties 1,849,123 1,805,243 1,765,353 996,714 2.4% 85.5%
Multifamily real estate 287,783 307,019 472,976 205,276 (6.3)% 40.2%
Commercial construction 105,594 87,711 72,103 45,137 20.4% 133.9%
Multifamily construction 97,697 79,737 63,846 60,075 22.5% 62.6%
One- to four-family construction 330,474 297,348 278,469 230,554 11.1% 43.3%
Land and land development:
Residential 156,964 142,841 126,773 105,146 9.9% 49.3%
Commercial 22,578 24,493 33,179 16,419 (7.8)% 37.5%
Commercial business 1,231,182 1,224,915 1,207,944 811,623 0.5% 51.7%
Agricultural business including secured by farmland 370,515 340,350 376,531 230,964 8.9% 60.4%
One- to four-family real estate 878,986 910,719 952,633 541,807 (3.5)% 62.2%
Consumer:
Consumer secured by one- to four-family real estate 485,545 481,590 478,420 244,216 0.8% 98.8%
Consumer-other 158,469 155,999 158,470 141,067 1.6% 12.3%
Total loans outstanding $7,325,925 $7,185,999 $7,314,504 $4,245,322 1.9% 72.6%
Restructured loans performing under their restructured terms $18,835 $19,450 $21,777 $26,114
Loans 30 - 89 days past due and on accrual (1) $14,447 $28,264 $18,834 $4,185
Total delinquent loans (including loans on non-accrual), net (2) $38,038 $43,986 $30,994 $27,476
Total delinquent loans / Total loans outstanding 0.52% 0.61% 0.42% 0.65%

(1) Includes $1.4 million of purchased credit-impaired loans at June 30, 2016 compared to $1.6 million at March 31, 2016, $4.3 million at December 31, 2015, and none at June 30, 2015.
(2) Delinquent loans include $4.4 million of delinquent purchased credit-impaired loans at June 30, 2016 compared to $4.9 million at March 31, 2016, $6.3 million at December 31, 2015 and $1.1 million at June 30, 2015.

LOANS BY GEOGRAPHIC LOCATION Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Washington $3,401,656 46.4% $3,333,912 46.4% $3,343,112 45.7% $2,405,570 56.7%
Oregon 1,461,906 20.0% 1,420,749 19.8% 1,446,531 19.8% 1,133,563 26.7%
California 1,184,392 16.2% 1,173,203 16.3% 1,234,016 16.9% 76,615 1.8%
Idaho 505,594 6.9% 493,905 6.9% 496,870 6.8% 339,554 8.0%
Utah 294,102 4.0% 289,082 4.0% 325,011 4.4% 8,339 0.2%
Other 478,275 6.5% 475,148 6.6% 468,964 6.4% 281,681 6.6%
Total loans $7,325,925 100.0% $7,185,999 100.0% $7,314,504 100.0% $4,245,322 100.0%



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Six months ended
CHANGE IN THE Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $78,197 $78,008 $75,365 $78,008 $75,907
Provision for loan losses 2,000 2,000
Recoveries of loans previously charged off:
Commercial real estate 26 38 197 64 211
Multifamily real estate 113 113
Construction and land 124 471 843 595 951
One- to four-family real estate 558 12 93 570 99
Commercial business 622 720 499 1,342 677
Agricultural business, including secured by farmland 160 17 1,225 177 1,520
Consumer 249 207 236 456 282
1,739 1,465 3,206 3,204 3,853
Loans charged off:
Commercial real estate (180) (64) (180) (64)
Construction and land (2) (2)
One- to four-family real estate (34) (40) (34) (115)
Commercial business (171) (139) (327) (310) (434)
Agricultural business, including secured by farmland (567) (246) (567) (1,064)
Consumer (413) (390) (563) (803) (752)
(618) (1,276) (1,242) (1,894) (2,431)
Net recoveries 1,121 189 1,964 1,310 1,422
Balance, end of period $81,318 $78,197 $77,329 $81,318 $77,329
Net recoveries / Average loans outstanding 0.015% 0.003% 0.047% 0.018% 0.035%


ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
Specific or allocated loss allowance:
Commercial real estate $20,149 $19,732 $20,716 $18,948
Multifamily real estate 1,515 2,853 4,195 4,273
Construction and land 31,861 29,318 27,131 25,415
One- to four-family real estate 2,204 2,170 4,732 8,542
Commercial business 17,758 15,118 13,856 13,184
Agricultural business, including secured by farmland 2,891 4,282 3,645 2,679
Consumer 3,743 3,541 902 780
Total allocated 80,121 77,014 75,177 73,821
Unallocated 1,197 1,183 2,831 3,508
Total allowance for loan losses $81,318 $78,197 $78,008 $77,329
Allowance for loan losses / Total loans outstanding 1.11% 1.09% 1.07% 1.82%
Allowance for loan losses / Non-performing loans 321% 501% 512% 332%



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial$11,753 $4,145 $3,751 $1,072
Multifamily31
Construction and land1,738 2,250 2,260 3,153
One- to four-family3,512 4,803 4,700 5,662
Commercial business1,426 1,558 2,159 179
Agricultural business, including secured by farmland4,459 663 697 1,560
Consumer1,165 906 703 861
24,084 14,325 14,270 12,487
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 1,835
Multifamily 570
Construction and land 5,951
One- to four-family896 1,039 899 1,976
Commercial business 8
Consumer337 251 45 472
1,233 1,290 952 10,804
Total non-performing loans25,317 15,615 15,222 23,291
Real estate owned (REO)6,147 7,207 11,627 6,105
Other repossessed assets256 202 268
Total non-performing assets$31,720 $23,024 $27,117 $29,396
Total non-performing assets / Total assets0.32% 0.24% 0.28% 0.57%
Purchased credit-impaired loans, net$45,376 $53,271 $58,600 $5,458


Quarters Ended Six months ended
REAL ESTATE OWNEDJun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
Balance, beginning of period$7,207 $11,627 $4,922 $11,627 $3,352
Additions from loan foreclosures376 2 1,473 378 2,141
Additions from acquisitions 400 400 2,525
Additions from capitalized costs 298 298
Proceeds from dispositions of REO(1,656) (4,666) (511) (6,322) (2,249)
Gain on sale of REO651 49 105 700 220
Valuation adjustments in the period(431) (205) (182) (636) (182)
Balance, end of period$6,147 $7,207 $6,105 $6,147 $6,105


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSIT COMPOSITION Percentage Change
Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015 Prior Qtr Prior Yr Qtr
Non-interest-bearing $3,023,986 $3,036,330 $2,619,618 $1,484,315 (0.4)% 103.7%
Interest-bearing checking 830,625 767,460 1,159,846 477,492 8.2% 74.0%
Regular savings accounts 1,321,518 1,327,558 1,284,642 1,003,189 (0.5)% 31.7%
Money market accounts 1,534,975 1,610,640 1,637,092 566,369 (4.7)% 171.0%
Interest-bearing transaction & savings accounts 3,687,118 3,705,658 4,081,580 2,047,050 (0.5)% 80.1%
Interest-bearing certificates 1,208,671 1,287,873 1,353,870 765,780 (6.1)% 57.8%
Total deposits $7,919,775 $8,029,861 $8,055,068 $4,297,145 (1.4)% 84.3%


GEOGRAPHIC CONCENTRATION OF DEPOSITS Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Washington $4,158,639 52.5% $4,209,332 52.4% $4,219,304 52.4% $2,858,101 66.5%
Oregon 1,686,160 21.3% 1,668,421 20.8% 1,648,421 20.4% 1,195,413 27.8%
California 1,485,795 18.8% 1,565,326 19.5% 1,592,365 19.8% —%
Idaho 421,427 5.3% 428,681 5.3% 435,099 5.4% 243,631 5.7%
Utah 167,754 2.1% 158,101 2.0% 159,879 2.0% —%
Total deposits $7,919,775 100.0% $8,029,861 100.0% $8,055,068 100.0% $4,297,145 100.0%


INCLUDED IN TOTAL DEPOSITS Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
Public non-interest-bearing accounts $102,486 $82,527 $85,489 $50,894
Public interest-bearing transaction & savings accounts 127,045 123,713 123,941 65,136
Public interest-bearing certificates 26,574 29,983 31,281 33,577
Total public deposits $256,105 $236,223 $240,711 $149,607
Total brokered deposits $92,982 $135,603 $162,936 $9,646


ADDITIONAL FINANCIAL INFORMATION
(in thousands)
BUSINESS COMBINATIONS
ACQUISITION OF STARBUCK BANCSHARES, INC.* October 1, 2015
Cash paid $130,000
Fair value of common shares issued 630,674
Total consideration 760,674
Fair value of assets acquired:
Cash and cash equivalents $95,821
Securities 1,037,238
Loans receivable 2,999,130
Real estate owned held for sale 6,105
Property and equipment 66,728
Core deposit intangible 33,500
Deferred tax asset 108,454
Other assets 113,009
Total assets acquired 4,459,985
Fair value of liabilities assumed:
Deposits 3,638,596
FHLB advances 221,442
Junior subordinated debentures 5,806
Other liabilities 56,359
Total liabilities assumed 3,922,203
Net assets acquired 537,782
Goodwill $222,892

* Amounts recorded in this table are preliminary estimates of fair value. Additional adjustments to the purchase price allocation may be required.

MERGER AND ACQUISITION EXPENSEQuarters Ended Six months ended
Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
By expense category:
Personnel severance/retention fees$(24) $1,313 $216 $1,288 $216
Professional services599 852 2,946 1,451 4,226
Branch consolidation and other occupancy expenses924 1,949 26 2,422 50
Client communications126 251 4 377 70
Information/computer data services532 1,417 466 1,949 506
Miscellaneous255 1,031 227 1,737 465
Total merger and acquisition expense$2,412 $6,813 $3,885 $9,224 $5,533
By acquisition:
Siuslaw Financial Group94 856 94 1,526
Starbuck Bancshares, Inc. (AmericanWest)2,318 6,813 3,029 9,130 4,007
Total merger and acquisition expense$2,412 $6,813 $3,885 $9,224 $5,533


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, 2016 Amount Ratio Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $1,170,090 13.52% $692,538 8.00% $865,672 10.00%
Tier 1 capital to risk-weighted assets 1,085,123 12.54% 519,403 6.00% 519,403 6.00%
Tier 1 leverage capital to average assets 1,085,123 11.43% 379,622 4.00% n/a n/a
Common equity tier 1 capital to risk-weighted assets 1,025,640 11.85% 389,552 4.50% n/a n/a
Banner Bank:
Total capital to risk-weighted assets 1,055,434 12.48% 676,515 8.00% 845,644 10.00%
Tier 1 capital to risk-weighted assets 972,695 11.50% 507,386 6.00% 676,515 8.00%
Tier 1 leverage capital to average assets 972,695 10.56% 368,422 4.00% 460,527 5.00%
Common equity tier 1 capital to risk-weighted assets 972,695 11.50% 380,539 4.50% 549,668 6.50%
Islanders Bank:
Total capital to risk-weighted assets 39,344 19.94% 15,799 8.00% 19,749 10.00%
Tier 1 capital to risk-weighted assets 37,116 18.79% 11,850 6.00% 15,799 8.00%
Tier 1 leverage capital to average assets 37,116 13.39% 11,087 4.00% 13,859 5.00%
Common equity tier 1 capital to risk-weighted assets 37,116 18.79% 8,879 4.50% 12,825 6.50%



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREADQuarter Ended
June 30, 2016 March 31, 2016 June 30, 2015
Average BalanceInterest and DividendsYield / Cost(3) Average BalanceInterest and DividendsYield / Cost(3) Average BalanceInterest and DividendsYield / Cost(3)
Interest-earning assets:
Mortgage loans$5,715,740 $68,914 4.85% $5,707,882 $68,743 4.84% $3,092,690 $38,642 5.01%
Commercial/agricultural loans1,504,969 17,816 4.76% 1,471,638 16,025 4.38% 960,818 10,509 4.39%
Consumer and other loans140,355 2,205 6.32% 141,361 2,190 6.23% 128,040 1,927 6.04%
Total loans(1)7,361,064 88,935 4.86% 7,320,881 86,958 4.78% 4,181,548 51,078 4.90%
Mortgage-backed securities1,004,044 5,274 2.11% 1,004,811 5,390 2.16% 305,427 1,275 1.67%
Other securities450,528 2,931 2.62% 427,496 2,772 2.61% 260,351 1,603 2.47%
Interest-bearing deposits with banks95,668 101 0.42% 103,775 101 0.39% 159,191 109 0.27%
FHLB stock18,911 80 1.70% 17,531 80 1.84% 16,903 11 0.26%
Total investment securities1,569,151 8,386 2.15% 1,553,613 8,343 2.16% 741,872 2,998 1.62%
Total interest-earning assets8,930,215 97,321 4.38% 8,874,494 95,301 4.32% 4,923,420 54,076 4.41%
Non-interest-earning assets903,706 894,066 272,486
Total assets$9,833,921 $9,768,560 $5,195,906
Deposits:
Interest-bearing checking accounts$789,626 185 0.09% $934,072 196 0.08% $481,568 99 0.08%
Savings accounts1,329,104 431 0.13% 1,307,369 423 0.13% 988,991 366 0.15%
Money market accounts1,577,320 811 0.21% 1,620,524 862 0.21% 573,101 225 0.16%
Certificates of deposit1,244,796 1,344 0.43% 1,328,741 1,465 0.44% 771,153 1,078 0.56%
Total interest-bearing deposits4,940,846 2,771 0.23% 5,190,706 2,946 0.23% 2,814,813 1,768 0.25%
Non-interest-bearing deposits3,029,890 % 2,788,372 % 1,489,940 %
Total deposits7,970,736 2,771 0.14% 7,979,078 2,946 0.15% 4,304,753 1,768 0.16%
Other interest-bearing liabilities:
FHLB advances214,290 339 0.64% 169,204 279 0.66% 192 3 6.27%
Other borrowings111,987 78 0.28% 102,865 75 0.29% 96,231 48 0.20%
Junior subordinated debentures140,212 985 2.83% 140,212 958 2.75% 131,964 800 2.43%
Total borrowings466,489 1,402 1.21% 412,281 1,312 1.28% 228,387 851 1.49%
Total funding liabilities8,437,225 4,173 0.20% 8,391,359 4,258 0.20% 4,533,140 2,619 0.23%
Other non-interest-bearing liabilities(2)62,858 63,014 2,966
Total liabilities8,500,083 8,454,373 4,536,106
Shareholders' equity1,333,838 1,314,187 659,800
Total liabilities and shareholders' equity$9,833,921 $9,768,560 $5,195,906
Net interest income/rate spread $93,148 4.18% $91,043 4.12% $51,457 4.18%
Net interest margin 4.20% 4.13% 4.19%
Additional Key Financial Ratios:
Return on average assets 0.86% 0.73% 1.02%
Return on average equity 6.32% 5.44% 8.05%
Average equity/average assets 13.56% 13.45% 12.70%
Average interest-earning assets/average interest-bearing liabilities 165.15% 158.39% 161.78%
Average interest-earning assets/average funding liabilities 105.84% 105.76% 108.61%
Non-interest income/average assets 0.84% 0.82% 1.25%
Non-interest expense/average assets 3.27% 3.46% 3.68%
Efficiency ratio(4) 70.27% 75.70% 70.61%


(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3)Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4)Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREADSix months ended
June 30, 2016 June 30, 2015
Average BalanceInterest and DividendsYield/Cost(3) Average BalanceInterest and DividendsYield/Cost(3)
Interest-earning assets:
Mortgage loans$5,711,811 $137,658 4.85% $3,003,444 $74,203 4.98%
Commercial/agricultural loans1,488,304 33,841 4.57% 923,586 19,477 4.25%
Consumer and other loans140,858 4,394 6.27% 124,593 3,763 6.09%
Total loans(1)7,340,973 175,893 4.82% 4,051,623 97,443 4.85%
Mortgage-backed securities1,004,427 10,664 2.14% 306,740 2,302 1.51%
Other securities439,012 5,702 2.61% 263,058 3,220 2.47%
Interest-bearing deposits with banks99,721 202 0.41% 125,384 162 0.26%
FHLB stock18,221 161 1.78% 21,895 18 0.17%
Total investment securities1,561,381 16,729 2.15% 717,077 5,702 1.60%
Total interest-earning assets8,902,354 192,622 4.35% 4,768,700 103,145 4.36%
Non-interest-earning assets898,887 250,935
Total assets$9,801,241 $5,019,635
Deposits:
Interest-bearing checking accounts$861,849 382 0.09% $463,690 189 0.08%
Savings accounts1,318,236 853 0.13% 959,585 710 0.15%
Money market accounts1,598,922 1,673 0.21% 547,612 428 0.16%
Certificates of deposit1,286,769 2,809 0.44% 770,270 2,174 0.57%
Total interest-bearing deposits5,065,776 5,717 0.23% 2,741,157 3,501 0.26%
Non-interest-bearing deposits2,909,131 % 1,410,949 %
Total deposits7,974,907 5,717 0.14% 4,152,106 3,501 0.17%
Other interest-bearing liabilities:
FHLB advances191,747 618 0.65% 8,920 20 0.45%
Other borrowings107,426 153 0.29% 92,289 91 0.20%
Junior subordinated debentures140,212 1,944 2.79% 129,048 1,541 2.41%
Total borrowings439,385 2,715 1.24% 230,257 1,652 1.45%
Total funding liabilities8,414,292 8,432 0.20% 4,382,363 5,153 0.24%
Other non-interest-bearing liabilities(2)62,936 3,021
Total liabilities8,477,228 4,385,384
Shareholders' equity1,324,013 634,251
Total liabilities and shareholders' equity$9,801,241 $5,019,635
Net interest income/rate spread $184,190 4.15% $97,992 4.12%
Net interest margin 4.16% 4.14%
Additional Key Financial Ratios:
Return on average assets 0.79% 1.02%
Return on average equity 5.88% 8.07%
Average equity/average assets 13.51% 12.64%
Average interest-earning assets/average interest-bearing liabilities 161.71% 160.49%
Average interest-earning assets/average funding liabilities 105.80% 108.82%
Non-interest income/average assets 0.83% 1.20%
Non-interest expense/average assets 3.36% 3.60%
Efficiency ratio(4) 72.96% 70.13%
(1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3) Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
* 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 OPERATIONSQuarters Ended Six months ended
Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
Net interest income before provision for loan losses$93,148 $91,043 $51,457 $184,190 $97,992
Total non-interest income20,537 19,959 16,141 40,497 29,838
Total GAAP revenue113,685 111,002 67,598 224,687 127,830
Exclude net (gain) loss on sale of securities380 (21) 28 359 537
Exclude change in valuation of financial instruments carried at fair value377 (29) (797) 348 (1,847)
Revenue from core operations (non-GAAP)$114,442 $110,952 $66,829 $225,394 $126,520


ACQUISITION ACCOUNTING IMPACT ON NET INTEREST MARGINQuarters Ended Six months ended
Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
Net interest income before provision for loan losses (GAAP)$93,148 $91,043 $51,457 $184,190 $97,992
Exclude discount accretion on purchased loans(3,214) (1,689) (414) (4,903) (627)
Exclude premium amortization on acquired certificates of deposit(460) (461) (62) (921) (123)
Net interest income before discount accretion (non-GAAP)$89,474 $88,893 $50,981 $178,366 $97,242
Average interest-earning assets (GAAP)$8,930,215 $8,874,494 $4,923,420 $8,902,354 $4,768,700
Exclude average net loan discount on acquired loans41,246 43,347 4,860 42,296 3,209
Average interest-earning assets before acquired loan discount (non-GAAP)$8,971,461 $8,917,841 $4,928,280 $8,944,650 $4,771,909
Net interest margin (GAAP)4.20% 4.13% 4.19% 4.16% 4.14%
Exclude impact on net interest margin from discount accretion(0.14) (0.08) (0.03) (0.11) (0.03)
Exclude impact on net interest margin from CD premium amortization(0.02) (0.02) (0.02)
Exclude impact of net loan discount on average earning assets(0.03) (0.02) (0.01) (0.02)
Net margin before discount accretion (non-GAAP)4.01% 4.01% 4.15% 4.01% 4.11%


NON-INTEREST INCOME/EXPENSE FROM CORE OPERATIONSQuarters Ended Six months ended
Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
Total non-interest income (GAAP)$20,537 $19,959 $16,141 $40,497 $29,838
Exclude net (gain) loss on sale of securities380 (21) 28 359 537
Exclude change in valuation of financial instruments carried at fair value377 (29) (797) 348 (1,847)
Non-interest income from core operations (non-GAAP)$21,294 $19,909 $15,372 $41,204 $28,528
Total non-interest expense (GAAP)$79,887 $84,034 $47,734 $163,921 $89,649
Exclude acquisition related costs(2,412) (6,813) (3,885) (9,224) (5,533)
Non-interest expense from core operations (non-GAAP)$77,475 $77,221 $43,849 $154,697 $84,116


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands except shares and per share data)
Quarters Ended Six months ended
Jun 30, 2016 Mar 31, 2016 Jun 30, 2015 Jun 30, 2016 Jun 30, 2015
EARNINGS FROM CORE OPERATIONS
Net income (GAAP) $20,957 $17,774 $13,249 $38,731 $25,383
Exclude net (gain) loss on sale of securities 380 (21) 28 359 537
Exclude change in valuation of financial instruments carried at fair value 377 (29) (797) 348 (1,847)
Exclude acquisition-related costs 2,412 6,813 3,885 9,224 5,533
Exclude related tax expense (benefit) (1,141) (2,417) (954) (3,557) (1,074)
Total earnings from core operations (non-GAAP) $22,985 $22,120 $15,411 $45,105 $28,532
Diluted earnings per share (GAAP) $0.61 $0.52 $0.64 $1.14 $1.25
Diluted core earnings per share (non-GAAP) $0.67 $0.65 $0.74 $1.32 $1.41
NET EFFECT OF ACQUISITION-RELATED COSTS ON EARNINGS
Acquisition-related costs $(2,412) $(6,813) $(3,885) $(9,224) $(5,533)
Related tax benefit 868 2,435 1,231 3,303 1,545
Total net effect of acquisition-related costs on earnings $(1,544) $(4,378) $(2,654) $(5,921) $(3,988)
Diluted weighted average shares outstanding 34,117,151 34,103,727 20,789,533 34,090,647 20,301,448
Total net effect of acquisition-related costs on diluted weighted average earnings per share $(0.05) $(0.13) $(0.13) $(0.17) $(0.20)


Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS
Shareholders' equity (GAAP) $1,338,517 $1,320,155 $1,300,059 $660,650
Exclude goodwill and other intangible assets, net 278,307 280,409 285,210 26,891
Tangible common shareholders' equity (non-GAAP) $1,060,210 $1,039,746 $1,014,849 $633,759
Total assets (GAAP) $9,916,205 $9,745,594 $9,796,298 $5,194,258
Exclude goodwill and other intangible assets, net 278,307 280,409 285,210 26,891
Total tangible assets (non-GAAP) $9,637,898 $9,465,185 $9,511,088 $5,167,367
Tangible common shareholders' equity to tangible assets (non-GAAP) 11.00% 10.98% 10.67% 12.26%
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
Tangible common shareholders' equity $1,060,210 $1,039,746 $1,014,849 $633,759
Common shares outstanding at end of period 34,350,560 34,221,451 34,242,255 20,970,681
Common shareholders' equity (book value) per share (GAAP) $38.97 $38.58 $37.97 $31.50
Tangible common shareholders' equity (tangible book value) per share (non-GAAP) $30.86 $30.38 $29.64 $30.22


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Jun 30, 2015
RATIO OF ADJUSTED ALLOWANCE FOR LOAN LOSSES TO ADJUSTED LOANS
Loans receivable (GAAP) $7,325,925 $7,185,999 $7,314,504 4,245,322
Net loan discount on acquired loans 38,838 42,302 43,657 4,618
Adjusted loans (non-GAAP) $7,364,763 $7,228,301 $7,358,161 4,249,940
Allowance for loan losses (GAAP) $81,318 $78,197 $78,008 77,329
Net loan discount on acquired loans 38,838 42,302 43,657 4,618
Adjusted allowance for loan losses (non-GAAP) $120,156 $120,499 $121,665 81,947
Adjusted allowance for loan losses / Adjusted loans (non-GAAP) 1.63% 1.67% 1.65% 1.93%


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

Source:Banner Corporation