×

Banner Corporation Second Quarter Net Income Increases to $25.5 Million, or $0.77 per Diluted Share; Fueled by Strong Net Interest Income, Increased Deposit Fees and Mortgage Banking Revenues

WALLA WALLA, Wash., July 26, 2017 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported that continued revenue growth contributed to strong second quarter 2017 operating results. Net income in the second quarter of 2017 increased 7% to $25.5 million, or $0.77 per diluted share, compared to $23.8 million, or $0.72 per diluted share, in the preceding quarter and increased 21% compared to $21.0 million, or $0.61 per diluted share, in the second quarter a year ago. There were no acquisition-related costs in the second quarter of 2017 or the preceding quarter. In the second quarter a year ago acquisition costs totaled $2.4 million. In the first six months of 2017, net income increased 27% to $49.2 million, or $1.49 per diluted share, compared to $38.7 million, or $1.14 per diluted share, in the first six months of 2016. There were no acquisition-related costs in the first half of 2017, compared to $9.2 million in acquisition-related costs in the first half of 2016.

“Banner’s strong second quarter operating results were fueled by increased net interest income driven by a solid net interest margin and the Company’s earning asset expansion following the renewed leveraging of the balance sheet, which occurred during the preceding quarter and had its full effect in the second quarter,” stated Mark J. Grescovich, President and Chief Executive Officer. “Accelerated business activity resulted in loan growth and deposit gathering which generated increases in net interest income, deposit fees and improved mortgage banking activity. Earlier this year we crossed the threshold of $10.0 billion in total assets, incurring increased expenses related to enhanced infrastructure and regulatory compliance costs. While increasing regulatory costs are a significant headwind, through the hard work of our employees, we are continuing to execute our strategies to deliver revenue growth, sustainable profitability and increasing value to our shareholders. Our continuing strong earnings trends allowed us to declare a special dividend of $1.00 per share in addition to the regular quarterly dividend of $0.25 per share while effectively managing and maintaining an appropriate capital position.”

At June 30, 2017, Banner Corporation had $10.20 billion in assets, $7.46 billion in net loans and $8.48 billion in deposits. Banner operates 190 branch offices located in nine of the top 20 largest western Metropolitan Statistical Areas by population.

Second Quarter 2017 Highlights

  • Net income increased 7% to $25.5 million, compared to $23.8 million in the preceding quarter and increased 21% compared to $21.0 million in the second quarter of 2016.
  • Return on average assets was 1.01% in the current quarter, compared to 0.97% in the preceding quarter and 0.86% in the same quarter a year ago.
  • Revenues from core operations* increased 6% to $122.9 million, compared to $116.4 million in the preceding quarter, and increased 7% compared to $114.4 million in the second quarter a year ago.
  • Net interest margin was 4.33% for the current quarter, compared to 4.25% in the preceding quarter and 4.20% in the second quarter a year ago.
  • Deposit fees and other service charges were $13.2 million, a 9% increase compared to $12.2 million in both the preceding quarter and in the same quarter a year ago.
  • Revenues from mortgage banking operations increased 48% to $6.8 million compared to $4.6 million in the preceding quarter and $6.6 million in the second quarter a year ago.
  • Provision for loan losses was $2.0 million, increasing the allowance for loan losses to $88.6 million or 1.17% of total loans.
  • Core deposits represented 86% of total deposits at June 30, 2017.
  • Quarterly dividends to shareholders were $0.25 per share, and a special cash dividend of $1.00 per share was also declared.
  • Common shareholders' tangible equity per share* was $31.21 at June 30, 2017, compared to $31.68 at the preceding quarter end and $30.86 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 10.46% at June 30, 2017, compared to 10.72% at the preceding quarter end and 11.00% 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), and references to tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net) 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 two pages of this press release.

Income Statement Review

Banner’s second quarter net interest income, before the provision for loan losses, increased 5% to $99.7 million, compared to $94.9 million in the preceding quarter and increased 7% compared to $93.1 million in the second quarter a year ago. In the first six months of 2017, net interest income, before the provision for loan losses, increased 6% to $194.6 million compared to $184.2 million in the first six months of 2016.

“Our net interest margin increased eight basis points compared to the preceding quarter, largely reflecting higher loan yields as a result of rising short-term interest rates and increased purchased loan discount accretion,” said Grescovich. Banner's net interest margin was 4.33% for the second quarter of 2017, compared to 4.25% in the preceding quarter and a 13 basis point improvement compared to 4.20% in the second quarter a year ago. Purchase accounting adjustments, principally discount accretion, added 15 basis points to the net interest margin in the current quarter compared to 10 basis points in the preceding quarter and 19 basis points in the second quarter a year ago. In the first six months of 2017, Banner’s net interest margin improved 13 basis points to 4.29% compared to 4.16% in the first six months of 2016. Purchase accounting adjustments added 13 basis points to the net interest margin for the first six months of 2017 compared to 15 basis points for the first six months of 2016.

Average interest-earning asset yields increased nine basis points to 4.53% compared to 4.44% for the preceding quarter and increased 15 basis points compared to 4.38% in the second quarter a year ago. Average loan yields increased 18 basis points to 4.98% compared to the preceding quarter and increased 12 basis points from the second quarter a year ago. Loan discount accretion added 13 basis points to loan yields in the second quarter, eight basis points to the preceding quarter and 14 basis points to the second quarter a year ago. Deposit costs increased one basis point to 0.15% compared to both the preceding quarter and the second quarter a year ago. The total cost of funds increased two basis points to 0.22% during the second quarter compared to 0.20% for both the preceding quarter and the second quarter a year ago.

“As expected, due to the addition of new loans and the renewal of acquired loans out of the discounted loan portfolio, we recorded a $2.0 million provision for loan losses during the second quarter, the same as in the preceding quarter and the year ago quarter,” said Grescovich. "While our asset quality metrics remain exceptionally good, adding to the loan loss allowance will likely continue as we strive to maintain an appropriate level of reserves and a moderate risk profile."

Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $6.8 million in the second quarter compared to $4.6 million in the preceding quarter and $6.6 million in the second quarter of 2016. Sales of multifamily loans in the current quarter resulted in gains of $1.2 million, while sales of multifamily loans generated $70,000 of gains in the preceding quarter. Home purchase activity accounted for 78% of second quarter one- to four-family mortgage banking loan originations.

Banner’s deposit fees and other service charges were $13.2 million in the second quarter, a 9% increase compared to $12.2 million in both the preceding quarter and in the second quarter a year ago.

Second quarter 2017 results included a $650,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value and a $54,000 net loss on the sale of securities. In the preceding quarter, results included a $688,000 net loss for fair value adjustments that was partly offset by a $13,000 net gain on the sale of securities. In the second quarter a year ago, results included a $377,000 net loss for fair value adjustments and a $380,000 net loss on the sale of securities.

Total revenues increased 6% to $122.2 million for the second quarter of 2017, compared to $115.7 million in the preceding quarter and increased 7% compared to $113.7 million in the second quarter a year ago. In the first six months of 2017, total revenues increased 6% to $237.9 million, compared to $224.7 million in the first six months of 2016. Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) increased 6% to $122.9 million in the second quarter of 2017, compared to $116.4 million in the preceding quarter, and increased 7% compared to $114.4 million in the second quarter of 2016. In the first six months of 2017, revenues from core operations* was $239.3 million, compared to $225.4 million in the first six months of 2016.

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 $22.5 million in the second quarter of 2017, compared to $20.8 million in the first quarter of 2017 and $20.1 million in the second quarter a year ago. In the first six months of 2017, total non-interest income was $43.3 million compared to $40.5 million in the first six months of 2016. 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 $23.2 million in the second quarter of 2017, compared to $21.5 million for the first quarter of 2017 and $21.3 million in the second quarter a year ago. In the first six months of 2017, non-interest income from core operations* was $44.7 million, compared to $41.2 million in the first six months of 2016.

Banner’s total non-interest expenses were $81.9 million in the second quarter of 2017, compared to $78.1 million in the preceding quarter and $79.9 million in the second quarter of 2016. The current and preceding quarter's non-interest expenses included increased salary and employee benefits and elevated costs for professional services as compared to the second quarter a year ago largely as result of enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out as a result of crossing the $10 billion threshold. There were no acquisition-related expenses in the current quarter or in the preceding quarter, compared to $2.4 million in the second quarter a year ago. In the first six months of 2017, non-interest expense was $160.0 million compared to $163.9 million in the first six months of 2016. The first six months of 2016 included $9.2 million of acquisition expenses. There were no acquisition-related expenses in the first six months of 2017.

For the second quarter of 2017, Banner recorded $12.8 million in state and federal income tax expense for an effective tax rate of 33.4%, 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 to $10.20 billion at June 30, 2017, from $10.07 billion at March 31, 2017 and $9.92 billion a year ago. The total of securities and interest-bearing deposits held at other banks was $1.66 billion at June 30, 2017, compared to $1.62 billion at March 31, 2017 and $1.16 billion at December 31, 2016. The increase in the securities portfolio during two most recent quarters reflects Banner's renewed leveraging strategy as it crossed the $10 billion assets threshold. In the third and fourth quarters of 2016, Banner reduced its holdings of securities and use of wholesale funding to ensure that it remained below $10 billion in total assets at December 31, 2016. The average effective duration of Banner's securities portfolio was approximately 3.5 years at June 30, 2017, compared to 3.8 years at December 31, 2016 and 2.6 years at June 30, 2016.

“Net loans increased $128 million during the quarter and increased 3% year over year, with good production in targeted loan types, including commercial and agricultural business, commercial real estate, construction and development loans and consumer loans,” said Grescovich. “We continue to be encouraged by robust economic activity in the markets that we serve and see significant potential for growth in our loan origination pipelines.”

Net loans receivable increased 2% to $7.46 billion at June 30, 2017, compared to $7.33 billion at March 31, 2017, and increased 3% compared to $7.24 billion a year ago. Commercial real estate and multifamily real estate loans decreased slightly to $3.62 billion at June 30, 2017, compared to $3.63 billion at March 31, 2017, but increased 4% compared to $3.49 billion a year ago. Commercial business loans increased 5% to $1.29 billion at June 30, 2017, compared to $1.22 billion three months earlier and increased 4% compared to $1.23 billion a year ago. Agricultural business loans increased 10% to $344.4 million at June 30, 2017, compared to $313.4 million three months earlier but declined compared to $370.5 million a year ago. Total construction, land and land development loans increased modestly to $811.5 million at June 30, 2017, compared to $803.7 million at March 31, 2017, and increased 14% compared to $713.3 million a year earlier. Consumer loans increased largely as a result of a successful second quarter campaign to generate additional home equity lines of credit. One- to four-family loans continued to decline as a result of repayments with nearly all newly originated mortgage loans being sold in the secondary market.

Loans held for sale decreased to $66.2 million at June 30, 2017, compared to $86.7 million at March 31, 2017, and $113.2 million at June 30, 2016. Banner sold $114.8 million of multifamily loans during the quarter ended June 30, 2017 and $200.7 million during the preceding quarter. Loans held for sale at June 30, 2017 included $42.9 million of multifamily loans and $23.3 million of one- to four-family loans.

Total deposits were $8.48 billion at June 30, 2017, a modest increase compared to $8.42 billion at March 31, 2017, and a 7% increase compared to $7.92 billion a year ago. Non-interest-bearing account balances increased 8% to $3.25 billion at June 30, 2017, compared to $3.02 billion a year ago. Interest-bearing transaction and savings accounts increased 9% to $4.02 billion compared to $3.69 billion a year ago. Certificates of deposit were $1.21 billion at June 30, 2017, unchanged from a year earlier. Brokered deposits totaled $250.0 million at June 30, 2017, compared to $171.5 million at March 31, 2017 and $93.0 million a year ago. Brokered deposits increased in the current quarter and six months year-to-date to provide funding for the purchase of investment securities in connection with Banner's renewed leveraging strategy.

Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) were essentially unchanged during the current quarter as a result of expected seasonal trends but increased 8% compared to June 30, 2016, reflecting additional account growth as well as increased balances from existing clients. Core deposits represented 86% of total deposits at both June 30, 2017 and March 31, 2017 and 85% of total deposits a year earlier. The average cost of deposits was 0.15% for the quarter ended June 30, 2017, a one basis point increase compared to both the preceding quarter and the quarter ended June 30, 2016.

At June 30, 2017, total common shareholders' equity was $1.31 billion, or $39.36 per share, compared to $1.32 billion at March 31, 2017 and $1.34 billion a year ago. During the second quarter Banner declared and accrued a regular $0.25 per share quarterly dividend as well as a $1.00 per share special dividend. At June 30, 2017, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.04 billion, or 10.46% of tangible assets*, compared to $1.05 billion, or 10.72% of tangible assets, at March 31, 2017 and $1.06 billion, or 11.00% of tangible assets, a year ago. Banner's tangible book value per share* increased to $31.21 at June 30, 2017, compared to $30.86 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, 2017, Banner Corporation's common equity Tier 1 capital ratio was 11.26%, its Tier 1 leverage capital to average assets ratio was 11.51%, and its total capital to risk-weighted assets ratio was 13.68%.

Credit Quality

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw Bank were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which 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 Bank.

The allowance for loan losses was $88.6 million at June 30, 2017, or 1.17% of total loans outstanding and 405% of non-performing loans compared to $81.3 million at June 30, 2016, or 1.11% of total loans outstanding and 321% of non-performing loans. Banner had net recoveries of $59,000 in the second quarter compared to net charge-offs of $1.5 million in the first quarter of 2017 and net recoveries of $1.1 million in the second quarter a year ago. Primarily as a result of the addition of new loans and the renewal of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses in the current quarter which was the same amount as recorded in the prior quarter and in the year ago quarter. Non-performing loans were $21.9 million at June 30, 2017, compared to $18.1 million at March 31, 2017 and $25.3 million a year ago. Real estate owned and other repossessed assets were $2.6 million at June 30, 2017, compared to $3.2 million at March 31, 2017 and $6.4 million a year ago.

Banner's non-performing assets were $24.5 million, or 0.24% of total assets, at June 30, 2017, compared to $21.3 million, or 0.21% of total assets, at March 31, 2017 and $31.7 million, or 0.32% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $26.3 million at June 30, 2017, compared to $30.5 million at March 31, 2017 and $45.4 million a year ago.

Conference Call

Banner will host a conference call on Thursday, July 27, 2017, 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 10109479, or at www.bannerbank.com.

About the Company

Banner Corporation is a $10.2 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) 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; (2) 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 or impose restrictions or penalties with respect to Banner's activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on customer behavior and net interest margin; (5) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon, Utah and California in particular; (11) the costs, effects and outcomes of litigation; (12) 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; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (16) 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, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
INTEREST INCOME:
Loans receivable $94,795 $91,288 $88,935 $186,083 $175,893
Mortgage-backed securities 6,239 4,647 5,274 10,886 10,664
Securities and cash equivalents 3,402 3,161 3,112 6,563 6,065
104,436 99,096 97,321 203,532 192,622
INTEREST EXPENSE:
Deposits 3,182 2,791 2,771 5,973 5,717
Federal Home Loan Bank advances 301 273 339 574 618
Other borrowings 83 74 78 157 153
Junior subordinated debentures 1,164 1,104 985 2,268 1,944
4,730 4,242 4,173 8,972 8,432
Net interest income before provision for loan losses 99,706 94,854 93,148 194,560 184,190
PROVISION FOR LOAN LOSSES 2,000 2,000 2,000 4,000 2,000
Net interest income 97,706 92,854 91,148 190,560 182,190
NON-INTEREST INCOME:
Deposit fees and other service charges 13,238 12,186 12,213 25,423 24,031
Mortgage banking operations 6,754 4,603 6,625 11,357 12,268
Bank owned life insurance 1,461 1,095 1,128 2,556 2,313
Miscellaneous 1,720 3,636 1,328 5,356 2,592
23,173 21,520 21,294 44,692 41,204
Net (loss) gain on sale of securities (54) 13 (380) (41) (359)
Net change in valuation of financial instruments carried at fair value (650) (688) (377) (1,338) (348)
Total non-interest income 22,469 20,845 20,537 43,313 40,497
NON-INTEREST EXPENSE:
Salary and employee benefits 49,019 46,063 45,175 95,083 91,738
Less capitalized loan origination costs (4,598) (4,316) (4,907) (8,914) (9,157)
Occupancy and equipment 12,045 11,996 11,052 24,041 21,440
Information / computer data services 4,100 3,994 4,852 8,094 9,772
Payment and card processing services 5,792 5,020 5,501 10,812 10,286
Professional services 3,732 5,152 865 8,885 3,479
Advertising and marketing 1,766 1,328 2,474 3,095 4,207
Deposit insurance 1,071 1,266 1,311 2,337 2,649
State/municipal business and use taxes 279 799 770 1,078 1,608
Real estate operations (363) (966) 137 (1,329) 534
Amortization of core deposit intangibles 1,624 1,624 1,808 3,248 3,615
Miscellaneous 7,463 6,118 8,437 13,577 14,526
81,930 78,078 77,475 160,007 154,697
Acquisition related expenses 2,412 9,224
Total non-interest expense 81,930 78,078 79,887 160,007 163,921
Income before provision for income taxes 38,245 35,621 31,798 73,866 58,766
PROVISION FOR INCOME TAXES 12,791 11,828 10,841 24,619 20,035
NET INCOME $25,454 $23,793 $20,957 $49,247 $38,731
Earnings per share available to common shareholders:
Basic $0.77 $0.72 $0.62 $1.49 $1.14
Diluted $0.77 $0.72 $0.61 $1.49 $1.14
Cumulative dividends declared per common share $1.25 $0.25 $0.21 $1.50 $0.42
Weighted average common shares outstanding:
Basic 32,982,126 32,933,444 34,069,234 32,957,920 34,053,105
Diluted 33,051,527 33,051,459 34,116,498 33,052,205 34,090,647
Increase (decrease) in common shares outstanding 125,167 (40,523) 129,109 84,644 108,305


FINANCIAL CONDITION Percentage Change
(in thousands except shares and per share data) Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016 Prior Qtr Prior Yr Qtr
ASSETS
Cash and due from banks $196,178 $196,277 $177,083 $158,446 (0.1)% 23.8%
Interest-bearing deposits 77,370 104,431 70,636 76,210 (25.9)% 1.5%
Total cash and cash equivalents 273,548 300,708 247,719 234,656 (9.0)% 16.6%
Securities - trading 24,950 24,753 24,568 33,753 0.8% (26.1)%
Securities - available for sale 1,290,159 1,223,764 800,917 1,177,757 5.4% 9.5%
Securities - held to maturity 268,050 266,391 267,873 254,666 0.6% 5.3%
Federal Home Loan Bank stock 12,334 10,334 12,506 23,347 19.4% (47.2)%
Loans held for sale 66,164 86,707 246,353 113,230 (23.7)% (41.6)%
Loans receivable 7,551,563 7,421,255 7,451,148 7,325,925 1.8% 3.1%
Allowance for loan losses (88,586) (86,527) (85,997) (81,318) 2.4% 8.9%
Net loans 7,462,977 7,334,728 7,365,151 7,244,607 1.7% 3.0%
Accrued interest receivable 30,722 30,312 30,178 30,052 1.4% 2.2%
Real estate owned held for sale, net 2,427 3,040 11,081 6,147 (20.2)% (60.5)%
Property and equipment, net 161,095 162,467 166,481 167,597 (0.8)% (3.9)%
Goodwill 244,583 244,583 244,583 244,583 % %
Other intangibles, net 26,813 28,488 30,162 33,724 (5.9)% (20.5)%
Bank-owned life insurance 160,609 159,948 158,936 158,001 0.4% 1.7%
Other assets 175,389 192,155 187,160 194,085 (8.7)% (9.6)%
Total assets $10,199,820 $10,068,378 $9,793,668 $9,916,205 1.3% 2.9%
LIABILITIES
Deposits:
Non-interest-bearing $3,254,581 $3,213,044 $3,140,451 $3,023,986 1.3% 7.6%
Interest-bearing transaction and savings accounts 4,022,909 4,064,198 3,935,630 3,687,118 (1.0)% 9.1%
Interest-bearing certificates 1,206,241 1,144,718 1,045,333 1,208,671 5.4% (0.2)%
Total deposits 8,483,731 8,421,960 8,121,414 7,919,775 0.7% 7.1%
Advances from Federal Home Loan Bank at fair value 50,212 213 54,216 325,383 nm (84.6)%
Customer repurchase agreements and other borrowings 116,455 120,245 105,685 112,308 (3.2)% 3.7%
Junior subordinated debentures at fair value 96,852 96,040 95,200 93,298 0.8% 3.8%
Accrued expenses and other liabilities 102,511 66,201 71,369 87,441 54.8% 17.2%
Deferred compensation 40,208 40,315 40,074 39,483 (0.3)% 1.8%
Total liabilities 8,889,969 8,744,974 8,487,958 8,577,688 1.7% 3.6%
SHAREHOLDERS' EQUITY
Common stock 1,215,316 1,214,517 1,213,837 1,263,085 0.1% (3.8)%
Retained earnings 94,541 110,783 95,328 63,967 (14.7)% 47.8%
Other components of shareholders' equity (6) (1,896) (3,455) 11,465 (99.7)% (100.1)%
Total shareholders' equity 1,309,851 1,323,404 1,305,710 1,338,517 (1.0)% (2.1)%
Total liabilities and shareholders' equity $10,199,820 $10,068,378 $9,793,668 $9,916,205 1.3% 2.9%
Common Shares Issued:
Shares outstanding at end of period 33,278,031 33,152,864 33,193,387 34,350,560
Common shareholders' equity per share (1) $39.36 $39.92 $39.34 $38.97
Common shareholders' tangible equity per share (1) (2) $31.21 $31.68 $31.06 $30.86
Common shareholders' tangible equity to tangible assets (2) 10.46% 10.72% 10.83% 11.00%
Consolidated Tier 1 leverage capital ratio 11.51% 11.79% 11.83% 11.85%


(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 four pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Percentage Change
LOANS Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016 Prior Qtr Prior Yr Qtr
Commercial real estate:
Owner occupied $1,358,094 $1,361,095 $1,352,999 $1,351,015 (0.2)% 0.5%
Investment properties 1,975,075 2,011,618 1,986,336 1,849,123 (1.8)% 6.8%
Multifamily real estate 288,442 254,246 248,150 287,783 13.4% 0.2%
Commercial construction 144,092 141,505 124,068 105,594 1.8% 36.5%
Multifamily construction 111,562 114,728 124,126 97,697 (2.8)% 14.2%
One- to four-family construction 380,782 366,191 375,704 330,474 4.0% 15.2%
Land and land development:
Residential 147,149 151,649 170,004 156,964 (3.0)% (6.3)%
Commercial 27,917 29,597 29,184 22,578 (5.7)% 23.6%
Commercial business 1,286,204 1,224,541 1,207,879 1,231,182 5.0% 4.5%
Agricultural business including secured by farmland 344,412 313,374 369,156 370,515 9.9% (7.0)%
One- to four-family real estate 800,008 802,991 813,077 878,986 (0.4)% (9.0)%
Consumer:
Consumer secured by one- to four-family real estate 527,623 493,495 493,211 485,545 6.9% 8.7%
Consumer-other 160,203 156,225 157,254 158,469 2.5% 1.1%
Total loans receivable $7,551,563 $7,421,255 $7,451,148 $7,325,925 1.8% 3.1%
Restructured loans performing under their restructured terms $13,531 $17,193 $18,907 $18,835
Loans 30 - 89 days past due and on accrual (1) $15,564 $22,214 $11,571 $14,447
Total delinquent loans (including loans on non-accrual), net (2) $32,961 $37,563 $30,553 $38,038
Total delinquent loans / Total loans outstanding 0.44% 0.51% 0.41% 0.52%

(1) Includes $835,000 of purchased credit-impaired loans at June 30, 2017 compared to $2.4 million at March 31, 2017, $470,000 at December 31, 2016 and $1.4 million at June 30, 2016.
(2) Delinquent loans include $2.5 million of delinquent purchased credit-impaired loans June 30, 2017 compared to $3.5 million at March 31, 2017, $1.7 million at December 31, 2016 and $4.4 million at June 30, 2016.

LOANS BY GEOGRAPHIC LOCATION Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Washington $3,425,627 45.3% $3,401,005 45.8% $3,433,617 46.1% $3,401,656 46.4%
Oregon 1,532,460 20.3% 1,493,054 20.1% 1,505,369 20.2% 1,461,906 20.0%
California 1,304,194 17.3% 1,255,597 16.9% 1,239,989 16.6% 1,184,392 16.2%
Idaho 487,378 6.5% 471,519 6.4% 495,992 6.7% 505,594 6.9%
Utah 294,467 3.9% 281,379 3.8% 283,890 3.8% 294,102 4.0%
Other 507,437 6.7% 518,701 7.0% 492,291 6.6% 478,275 6.5%
Total loans $7,551,563 100.0% $7,421,255 100.0% $7,451,148 100.0% $7,325,925 100.0%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Six months ended
CHANGE IN THE Jun 30, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $86,527 $85,997 $78,197 $85,997 $78,008
Provision for loan losses 2,000 2,000 2,000 4,000 2,000
Recoveries of loans previously charged off:
Commercial real estate 264 70 26 334 64
Multifamily real estate 11 11
Construction and land 1,024 83 124 1,107 595
One- to four-family real estate 109 145 558 254 570
Commercial business 171 173 622 344 1,342
Agricultural business, including secured by farmland 19 113 160 132 177
Consumer 101 94 249 195 456
1,699 678 1,739 2,377 3,204
Loans charged off:
Commercial real estate (47) (47) (180)
One- to four-family real estate (34) (34)
Commercial business (1,169) (1,626) (171) (2,795) (310)
Agricultural business, including secured by farmland (104) (159) (263) (567)
Consumer (320) (363) (413) (683) (803)
(1,640) (2,148) (618) (3,788) (1,894)
Net recoveries (charge-offs) 59 (1,470) 1,121 (1,411) 1,310
Balance, end of period $88,586 $86,527 $81,318 $88,586 $81,318
Net recoveries (charge-offs) / Average loans outstanding 0.001% (0.019)% 0.015% (0.018)% 0.018%


ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016
Specific or allocated loss allowance:
Commercial real estate $24,232 $20,472 $20,993 $20,149
Multifamily real estate 1,562 1,378 1,360 1,515
Construction and land 27,312 29,464 34,252 31,861
One- to four-family real estate 2,010 1,974 2,238 2,204
Commercial business 19,126 19,768 16,533 17,758
Agricultural business, including secured by farmland 3,808 3,245 2,967 2,891
Consumer 3,987 3,840 4,104 3,743
Total allocated 82,037 80,141 82,447 80,121
Unallocated 6,549 6,386 3,550 1,197
Total allowance for loan losses $88,586 $86,527 $85,997 $81,318
Allowance for loan losses / Total loans outstanding 1.17% 1.17% 1.15% 1.11%
Allowance for loan losses / Non-performing loans 405% 479% 381% 321%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial$6,267 $6,910 $8,237 $11,753
Multifamily 147 31
Construction and land1,726 1,775 1,748 1,738
One- to four-family2,955 3,386 2,263 3,512
Commercial business7,037 2,700 3,074 1,426
Agricultural business, including secured by farmland1,456 1,012 3,229 4,459
Consumer1,494 1,285 1,875 1,165
20,935 17,215 20,426 24,084
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 701
Multifamily 147
One- to four-family754 545 1,233 896
Commercial business77
Consumer108 297 72 337
939 842 2,153 1,233
Total non-performing loans21,874 18,057 22,579 25,317
Real estate owned (REO)2,427 3,040 11,081 6,147
Other repossessed assets181 162 166 256
Total non-performing assets$24,482 $21,259 $33,826 $31,720
Total non-performing assets to total assets0.24% 0.21% 0.35% 0.32%
Purchased credit-impaired loans, net$26,267 $30,501 $32,322 $45,376


Quarters Ended Six months ended
REAL ESTATE OWNEDJun 30, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
Balance, beginning of period$3,040 $11,081 $7,207 $11,081 $11,627
Additions from loan foreclosures46 376 46 378
Additions from acquisitions 400
Additions from capitalized costs54 54
Proceeds from dispositions of REO(1,228) (9,193) (1,656) (10,421) (6,322)
Gain on sale of REO721 1,202 651 1,923 700
Valuation adjustments in the period(206) (50) (431) (256) (636)
Balance, end of period$2,427 $3,040 $6,147 $2,427 $6,147



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSIT COMPOSITION Percentage Change
Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016 Prior Qtr Prior Yr
Non-interest-bearing $3,254,581 $3,213,044 $3,140,451 $3,023,986 1.3% 7.6%
Interest-bearing checking 953,227 928,232 914,484 830,625 2.7% 14.8%
Regular savings accounts 1,530,517 1,592,023 1,523,391 1,321,518 (3.9)% 15.8%
Money market accounts 1,539,165 1,543,943 1,497,755 1,534,975 (0.3)% 0.3%
Total interest-bearing transaction and savings accounts 4,022,909 4,064,198 3,935,630 3,687,118 (1.0)% 9.1%
Interest-bearing certificates 1,206,241 1,144,718 1,045,333 1,208,671 5.4% (0.2)%
Total deposits $8,483,731 $8,421,960 $8,121,414 $7,919,775 0.7% 7.1%


GEOGRAPHIC CONCENTRATION OF DEPOSITS Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Washington $4,615,284 54.5% $4,619,457 54.9% $4,347,644 53.6% $4,158,639 52.5%
Oregon 1,806,639 21.3% 1,746,143 20.7% 1,708,973 21.0% 1,686,160 21.3%
California 1,445,621 17.0% 1,469,351 17.4% 1,469,748 18.1% 1,485,795 18.8%
Idaho 416,933 4.9% 429,850 5.1% 447,019 5.5% 421,427 5.3%
Utah 199,254 2.3% 157,159 1.9% 148,030 1.8% 167,754 2.1%
Total deposits $8,483,731 100.0% $8,421,960 100.0% $8,121,414 100.0% $7,919,775 100.0%


INCLUDED IN TOTAL DEPOSITS Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016
Public non-interest-bearing accounts $85,760 $80,322 $92,789 $102,486
Public interest-bearing transaction & savings accounts 124,075 125,921 128,976 127,045
Public interest-bearing certificates 30,496 31,024 25,650 26,574
Total public deposits $240,331 $237,267 $247,415 $256,105
Total brokered deposits $250,001 $171,521 $34,074 $92,982


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, 2017 Amount Ratio Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $1,220,389 13.68% $713,907 8.00% $892,384 10.00%
Tier 1 capital to risk-weighted assets 1,129,354 12.66% 535,431 6.00% 535,431 6.00%
Tier 1 leverage capital to average assets 1,129,354 11.51% 392,603 4.00% n/a n/a
Common equity tier 1 capital to risk-weighted assets 1,005,226 11.26% 401,573 4.50% n/a n/a
Banner Bank:
Total capital to risk-weighted assets 1,073,818 12.31% 697,992 8.00% 872,489 10.00%
Tier 1 capital to risk-weighted assets 985,051 11.29% 523,494 6.00% 697,992 8.00%
Tier 1 leverage capital to average assets 985,051 10.32% 381,966 4.00% 477,458 5.00%
Common equity tier 1 capital to risk-weighted assets 985,051 11.29% 392,620 4.50% 567,118 6.50%
Islanders Bank:
Total capital to risk-weighted assets 31,171 16.29% 15,304 8.00% 19,131 10.00%
Tier 1 capital to risk-weighted assets 28,903 15.11% 11,478 6.00% 15,304 8.00%
Tier 1 leverage capital to average assets 28,903 11.12% 10,394 4.00% 12,993 5.00%
Common equity tier 1 capital to risk-weighted assets 28,903 15.11% 8,609 4.50% 12,435 6.50%



ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREADQuarters Ended
June 30, 2017 March 31, 2017 June 30, 2016
Average BalanceInterest and DividendsYield / Cost(3) Average BalanceInterest and DividendsYield / Cost(3) Average BalanceInterest and DividendsYield / Cost(3)
Interest-earning assets:
Mortgage loans$5,987,295 $74,459 4.99% $6,104,779 $72,549 4.82% $5,715,740 $68,914 4.85%
Commercial/agricultural loans1,503,548 18,179 4.85% 1,464,532 16,546 4.58% 1,504,969 17,816 4.76%
Consumer and other loans138,724 2,157 6.24% 138,033 2,193 6.44% 140,355 2,205 6.32%
Total loans(1)7,629,567 94,795 4.98% 7,707,344 91,288 4.80% 7,361,064 88,935 4.86%
Mortgage-backed securities1,067,255 6,239 2.34% 842,071 4,647 2.24% 1,004,044 5,274 2.11%
Other securities471,894 3,192 2.71% 453,793 3,037 2.71% 450,528 2,931 2.62%
Interest-bearing deposits with banks54,051 139 1.03% 32,195 93 1.17% 95,668 101 0.42%
FHLB stock14,472 71 1.97% 15,550 31 0.81% 18,911 80 1.70%
Total investment securities1,607,672 9,641 2.41% 1,343,609 7,808 2.36% 1,569,151 8,386 2.15%
Total interest-earning assets9,237,239 104,436 4.53% 9,050,953 99,096 4.44% 8,930,215 97,321 4.38%
Non-interest-earning assets896,136 923,165 903,706
Total assets$10,133,375 $9,974,118 $9,833,921
Deposits:
Interest-bearing checking accounts$927,375 210 0.09% $896,764 200 0.09% $789,626 185 0.09%
Savings accounts1,553,019 527 0.14% 1,557,734 523 0.14% 1,329,104 431 0.13%
Money market accounts1,534,551 689 0.18% 1,522,470 651 0.17% 1,577,320 811 0.21%
Certificates of deposit1,200,435 1,756 0.59% 1,089,316 1,417 0.53% 1,244,796 1,344 0.43%
Total interest-bearing deposits5,215,380 3,182 0.24% 5,066,284 2,791 0.22% 4,940,846 2,771 0.23%
Non-interest-bearing deposits3,158,727 % 3,148,520 % 3,029,890 %
Total deposits8,374,107 3,182 0.15% 8,214,804 2,791 0.14% 7,970,736 2,771 0.14%
Other interest-bearing liabilities:
FHLB advances103,848 301 1.16% 130,274 273 0.85% 214,290 339 0.64%
Other borrowings116,513 83 0.29% 108,091 74 0.28% 111,987 78 0.28%
Junior subordinated debentures140,212 1,164 3.33% 140,212 1,104 3.19% 140,212 985 2.83%
Total borrowings360,573 1,548 1.72% 378,577 1,451 1.55% 466,489 1,402 1.21%
Total funding liabilities8,734,680 4,730 0.22% 8,593,381 4,242 0.20% 8,437,225 4,173 0.20%
Other non-interest-bearing liabilities(2)56,175 58,489 62,858
Total liabilities8,790,855 8,651,870 8,500,083
Shareholders' equity1,342,520 1,322,248 1,333,838
Total liabilities and shareholders' equity$10,133,375 $9,974,118 $9,833,921
Net interest income/rate spread $99,706 4.31% $94,854 4.24% $93,148 4.18%
Net interest margin 4.33% 4.25% 4.20%
Additional Key Financial Ratios:
Return on average assets 1.01% 0.97% 0.86%
Return on average equity 7.60% 7.30% 6.32%
Average equity/average assets 13.25% 13.26% 13.56%
Average interest-earning assets/average interest-bearing liabilities 165.66% 166.23% 165.15%
Average interest-earning assets/average funding liabilities 105.75% 105.32% 105.84%
Non-interest income/average assets 0.89% 0.85% 0.84%
Non-interest expense/average assets 3.24% 3.17% 3.27%
Efficiency ratio(4) 67.06% 67.48% 70.27%
Adjusted efficiency ratio(5) 65.42% 65.84% 65.33%


(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.
(5)Adjusted non-interest expense divided by adjusted revenue. Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments. Adjusted non-interest expense excludes acquisition related costs, amortization of core deposit intangibles (CDI), real estate operations expense, and state/municipal business and use taxes. These represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREADSix months ended
June 30, 2017 June 30, 2016
Average BalanceInterest and DividendsYield/Cost(3) Average BalanceInterest and DividendsYield/Cost(3)
Interest-earning assets:
Mortgage loans$6,045,712 $147,008 4.90% $5,711,811 $137,658 4.85%
Commercial/agricultural loans1,484,148 34,725 4.72% 1,488,304 33,841 4.57%
Consumer and other loans138,380 4,350 6.34% 140,858 4,394 6.27%
Total loans(1)7,668,240 186,083 4.89% 7,340,973 175,893 4.82%
Mortgage-backed securities955,285 10,886 2.30% 1,004,427 10,664 2.14%
Other securities462,894 6,229 2.71% 439,012 5,702 2.61%
Interest-bearing deposits with banks43,183 232 1.08% 99,721 202 0.41%
FHLB stock15,008 102 1.37% 18,221 161 1.78%
Total investment securities1,476,370 17,449 2.38% 1,561,381 16,729 2.15%
Total interest-earning assets9,144,610 203,532 4.49% 8,902,354 192,622 4.35%
Non-interest-earning assets909,576 898,887
Total assets$10,054,186 $9,801,241
Deposits:
Interest-bearing checking accounts$912,154 410 0.09% $861,849 382 0.09%
Savings accounts1,555,363 1,050 0.14% 1,318,236 853 0.13%
Money market accounts1,528,545 1,340 0.18% 1,598,922 1,673 0.21%
Certificates of deposit1,145,182 3,173 0.56% 1,286,769 2,809 0.44%
Total interest-bearing deposits5,141,244 5,973 0.23% 5,065,776 5,717 0.23%
Non-interest-bearing deposits3,153,652 % 2,909,131 %
Total deposits8,294,896 5,973 0.15% 7,974,907 5,717 0.14%
Other interest-bearing liabilities:
FHLB advances116,988 574 0.99% 191,747 618 0.65%
Other borrowings112,325 157 0.28% 107,426 153 0.29%
Junior subordinated debentures140,212 2,268 3.26% 140,212 1,944 2.79%
Total borrowings369,525 2,999 1.64% 439,385 2,715 1.24%
Total funding liabilities8,664,421 8,972 0.21% 8,414,292 8,432 0.20%
Other non-interest-bearing liabilities(2)57,325 62,936
Total liabilities8,721,746 8,477,228
Shareholders' equity1,332,440 1,324,013
Total liabilities and shareholders' equity$10,054,186 $9,801,241
Net interest income/rate spread $194,560 4.28% $184,190 4.15%
Net interest margin 4.29% 4.16%
Additional Key Financial Ratios:
Return on average assets 0.99% 0.79%
Return on average equity 7.45% 5.88%
Average equity/average assets 13.25% 13.51%
Average interest-earning assets/average interest-bearing liabilities 165.94% 161.71%
Average interest-earning assets/average funding liabilities 105.54% 105.80%
Non-interest income/average assets 0.87% 0.83%
Non-interest expense/average assets 3.21% 3.36%
Efficiency ratio(4) 67.27% 72.96%
Adjusted efficiency ratio(5) 65.63% 66.08%


(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.
(5)Adjusted non-interest expense divided by adjusted revenue. Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments. Adjusted non-interest expense excludes acquisition related costs, amortization of CDI, real estate operations expense, and state/municipal business and use taxes. These represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
* Non-GAAP Financial Measures
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, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
Net interest income before provision for loan losses$99,706 $94,854 $93,148 $194,560 $184,190
Total non-interest income22,469 20,845 20,537 43,313 40,497
Total GAAP revenue122,175 115,699 113,685 237,873 224,687
Exclude net loss (gain) on sale of securities54 (13) 380 41 359
Exclude change in valuation of financial instruments carried at fair value650 688 377 1,338 348
Revenue from core operations (non-GAAP)$122,879 $116,374 $114,442 $239,252 $225,394


NON-INTEREST INCOME FROM CORE OPERATIONS Quarters Ended Six months ended
Jun 30, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
Total non-interest income (GAAP) $22,469 $20,845 $20,537 $43,313 $40,497
Exclude net loss (gain) on sale of securities 54 (13) 380 41 359
Exclude change in valuation of financial instruments carried at fair value 650 688 377 1,338 348
Non-interest income from core operations (non-GAAP) $23,173 $21,520 $21,294 $44,692 $41,204


EARNINGS FROM CORE OPERATIONS Quarters Ended Six months ended
Jun 30, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
Net income (GAAP) $25,454 $23,793 $20,957 $49,247 $38,731
Exclude net loss (gain) on sale of securities 54 (13) 380 41 359
Exclude change in valuation of financial instruments carried at fair value 650 688 377 1,338 348
Exclude acquisition-related costs 2,412 9,224
Exclude related tax benefit (253) (243) (1,141) (496) (3,557)
Total earnings from core operations (non-GAAP) $25,905 $24,225 $22,985 $50,130 $45,105
Diluted earnings per share (GAAP) $0.77 $0.72 $0.61 $1.49 $1.14
Diluted core earnings per share (non-GAAP) $0.78 $0.73 $0.67 $1.52 $1.32


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
ADJUSTED EFFICIENCY RATIO Quarters Ended Six months ended
Jun 30, 2017 Mar 31, 2017 Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
Non-interest expense (GAAP) $81,930 $78,078 $79,887 $160,007 $163,921
Exclude acquisition-related costs (2,412) (9,224)
Exclude CDI amortization (1,624) (1,624) (1,808) (3,248) (3,615)
Exclude state/municipal tax expense (279) (799) (770) (1,078) (1,608)
Exclude REO gain (loss) 363 966 (137) 1,329 (534)
Adjusted non-interest expense (non-GAAP) $80,390 $76,621 $74,760 $157,010 $148,940
Net interest income before provision for loan losses (GAAP) $99,706 $94,854 $93,148 $194,560 $184,190
Non-interest income (GAAP) 22,469 20,845 20,537 43,313 40,497
Total revenue 122,175 115,699 113,685 237,873 224,687
Exclude net (gain) loss on sale of securities 54 (13) 380 41 359
Exclude net change in valuation of financial instruments carried at fair value 650 688 377 1,338 348
Adjusted revenue (non-GAAP) $122,879 $116,374 $114,442 $239,252 $225,394
Efficiency ratio (GAAP) 67.06% 67.48% 70.27% 67.27% 72.96%
Adjusted efficiency ratio (non-GAAP) 65.42% 65.84% 65.33% 65.63% 66.08%


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Jun 30, 2016
Shareholders' equity (GAAP) $1,309,851 $1,323,404 $1,305,710 $1,338,517
Exclude goodwill and other intangible assets, net 271,396 273,071 274,745 278,307
Tangible common shareholders' equity (non-GAAP) $1,038,455 $1,050,333 $1,030,965 $1,060,210
Total assets (GAAP) $10,199,820 $10,068,378 $9,793,668 $9,916,205
Exclude goodwill and other intangible assets, net 271,396 273,071 274,745 278,307
Total tangible assets (non-GAAP) $9,928,424 $9,795,307 $9,518,923 $9,637,898
Common shareholders' equity to total assets (GAAP) 12.84% 13.14% 13.33% 13.50%
Tangible common shareholders' equity to tangible assets (non-GAAP) 10.46% 10.72% 10.83% 11.00%
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
Tangible common shareholders' equity $1,038,455 $1,050,333 $1,030,965 $1,060,210
Common shares outstanding at end of period 33,278,031 33,152,864 33,193,387 34,350,560
Common shareholders' equity (book value) per share (GAAP) $39.36 $39.92 $39.34 $38.97
Tangible common shareholders' equity (tangible book value) per share (non-GAAP) $31.21 $31.68 $31.06 $30.86


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

Source:Banner Corporation