×

Banner Corporation Reports Third Quarter Net Income of $25.1 Million, or $0.76 per Diluted Share; Highlighted by Strong Loan and Core Deposit Growth

WALLA WALLA, Wash., Oct. 25, 2017 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM:BANR), the parent company of Banner Bank and Islanders Bank, today reported that year-over-year revenue growth contributed to solid third quarter and year-to-date 2017 operating results. Net income in the third quarter of 2017 was $25.1 million, or $0.76 per diluted share, compared to $25.5 million, or $0.77 per diluted share, in the preceding quarter and increased 5% compared to $23.9 million, or $0.70 per diluted share, in the third quarter a year ago. There were no acquisition-related expenses in the third quarter of 2017 or the preceding quarter. In the third quarter a year ago, acquisition-related expenses totaled $1.7 million. In the first nine months of 2017, net income increased 19% to $74.3 million, or $2.25 per diluted share, compared to $62.6 million, or $1.83 per diluted share, in the first nine months of 2016. There were no acquisition-related costs in the first nine months of 2017, compared to $10.9 million in acquisition-related expenses in the first nine months of 2016.

“Our third quarter financial results were highlighted by strong loan and core deposit growth and solid net interest income reflecting earning asset expansion and our strong net interest margin,” stated Mark J. Grescovich, President and Chief Executive Officer. “While we experienced a significant decrease in accretion income on loans acquired in merger transactions compared to recent quarters, strong business activity resulted in both loan and core deposit growth for the quarter and year to date, generating meaningful increases in contractual net interest income and deposit fees. 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. Although increasing regulatory costs are a significant headwind, we are continuing to successfully execute our strategies to deliver revenue growth, sustainable profitability and increasing value to our shareholders while still maintaining our moderate risk profile.”

At September 30, 2017, Banner Corporation had $10.44 billion in assets, $7.77 billion in net loans and $8.54 billion in deposits. Banner operates 178 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2017 Highlights

  • Net income was $25.1 million, compared to $25.5 million in the preceding quarter and increased 5% compared to $23.9 million in the third quarter of 2016.
  • Return on average assets was 0.97% in the current quarter, compared to 1.01% in the preceding quarter and 0.96% in the same quarter a year ago.
  • Revenues from core operations* were $120.8 million, compared to $122.9 million in the preceding quarter, and increased 3% compared to $117.5 million in the third quarter a year ago.
  • Net interest margin was 4.22% for the current quarter, compared to 4.33% in the preceding quarter and 4.15% in the third quarter a year ago.
  • Deposit fees and other service charges were $13.3 million, compared to $13.2 million in the preceding quarter and a 3% increase compared to $12.9 million in the third quarter a year ago.
  • Provision for loan losses was $2.0 million, increasing the allowance for loan losses to $89.1 million or 1.15% of total loans.
  • Net loans receivable increased 3% to $7.69 billion at September 30, 2017, compared to $7.46 billion at June 30, 2017, and increased 5% compared to $7.31 billion a year ago.
  • Core deposits increased 2% during the current quarter and increased 6% compared to September 30, 2016.
  • Core deposits represented 87% of total deposits at September 30, 2017.
  • Quarterly dividends to shareholders were $0.25 per share. In addition, Banner paid a special dividend of $1.00 per share on July 18, 2017.
  • Common shareholders' tangible equity per share* was $31.79 at September 30, 2017, compared to $31.21 at the preceding quarter end and $31.14 a year ago.
  • The ratio of tangible common shareholders' equity to tangible assets* remained strong at 10.39% at September 30, 2017, compared to 10.46% at the preceding quarter end and 11.03% 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 third quarter net interest income, before the provision for loan losses, increased modestly to $100.2 million, compared to $99.7 million in the preceding quarter and increased 7% compared to $93.7 million in the third quarter a year ago. In the first nine months of 2017, net interest income, before the provision for loan losses, increased 6% to $294.8 million compared to $277.9 million in the first nine months of 2016.

“Our net interest margin decreased compared to the preceding quarter, largely reflecting decreased purchased loan discount accretion,” said Grescovich. Banner's net interest margin was 4.22% for the third quarter of 2017, compared to 4.33% in the preceding quarter and reflected a seven basis point improvement compared to 4.15% in the third quarter a year ago. Acquisition accounting adjustments, principally loan discount accretion, added 10 basis points to the net interest margin in the current quarter compared to 15 basis points in the preceding quarter and 11 basis points in the third quarter a year ago. In the first nine months of 2017, Banner’s net interest margin improved 11 basis points to 4.27% compared to 4.16% in the first nine months of 2016. Purchase accounting adjustments added 12 basis points to the net interest margin for the first nine months of 2017 compared to 14 basis points for the first nine months of 2016. The total purchase discount for acquired loans was $23.4 million at September 30, 2017, down from $25.8 million at June 30, 2017 and $34.9 million a year ago due to discount accretion.

Average interest-earning asset yields decreased ten basis points to 4.43% compared to 4.53% for the preceding quarter and increased nine basis points compared to 4.34% in the third quarter a year ago. Average loan yields decreased ten basis points to 4.88% compared to the preceding quarter and increased ten basis points from the third quarter a year ago. Loan discount accretion added 12 basis points to loan yields in the third quarter, compared to 18 basis points in the preceding quarter and 15 basis points in the third quarter a year ago. Deposit costs were 0.15% in the third quarter, the same as in the preceding quarter and a one basis point increase compared to the third quarter a year ago. The total cost of funds increased one basis point to 0.23% during the third quarter compared to 0.22% for the preceding quarter and 0.19% for the third quarter a year ago.

“While our asset quality metrics remain strong, we modestly increased the loan loss allowance during the quarter and expect to continue adding to the allowance as we strive to maintain solid reserves and a moderate risk profile,” said Grescovich. Largely as a result of the addition of new loans and the renewal of acquired loans out of the discounted loan portfolio as well as net charge-offs, Banner recorded a $2.0 million provision for loan losses during the third quarter, the same as in the preceding quarter and the year ago quarter.

Deposit fees and other service charges were $13.3 million in the third quarter, a modest increase compared to $13.2 million in the preceding quarter and a 3% increase compared to $12.9 million in the third quarter a year ago.

Banner’s mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $4.5 million in the third quarter compared to $6.8 million in the preceding quarter and $8.1 million in the third quarter of 2016. Sales of one- to four-family loans in the current quarter resulted in gains of $3.7 million compared to $4.4 million in the preceding quarter. The decrease was due to a decline in spreads on one- to four-family loan originations and sales during the quarter. Home purchase activity accounted for 77% of third quarter one- to four-family mortgage loan originations. Sales of multifamily loans in the current quarter resulted in gains of $268,000, while sales of multifamily loans generated $1.8 million of gains in the preceding quarter. The decline in multifamily gain on sale income was due to a combination of declining market spreads on sold loans in the current quarter and the transition to hedge accounting in previous quarter.

Third quarter 2017 results included a $493,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value that was partially offset by a $270,000 net gain on the sale of securities. In the preceding quarter, results included a $650,000 net loss for fair value adjustments and a $54,000 net loss on the sale of securities. In the third quarter a year ago, results included a $1.1 million net loss for fair value adjustments that was partially offset by an $891,000 net gain on the sale of securities.

Total revenues decreased slightly to $120.5 million for the third quarter of 2017, compared to $122.2 million in the preceding quarter but increased 3% compared to $117.2 million in the third quarter a year ago. In the first nine months of 2017, total revenues increased 5% to $358.4 million, compared to $341.9 million in the first nine 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) decreased to $120.8 million in the third quarter of 2017, compared to $122.9 million in the preceding quarter, but increased 3% compared to $117.5 million in the third quarter of 2016. In the first nine months of 2017, revenues from core operations* increased 5% to $360.0 million, compared to $342.8 million in the first nine 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 $20.3 million in the third quarter of 2017, compared to $22.5 million in the second quarter of 2017 and $23.5 million in the third quarter a year ago. In the first nine months of 2017, total non-interest income was $63.7 million compared to $64.0 million in the first nine 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 $20.6 million in the third quarter of 2017, compared to $23.2 million for the second quarter of 2017 and $23.7 million in the third quarter a year ago. In the first nine months of 2017, non-interest income from core operations* was $65.3 million, compared to $64.9 million in the first nine months of 2016.

Banner’s total non-interest expenses were $82.6 million in the third quarter of 2017, compared to $81.9 million in the preceding quarter and $79.1 million in the third 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 third quarter a year ago largely due to enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out as a result of crossing the $10 billion asset threshold. There were no acquisition-related expenses in the current quarter or in the preceding quarter, compared to $1.7 million in the third quarter a year ago. In the first nine months of 2017, non-interest expense was $242.6 million compared to $243.0 million in the first nine months of 2016. The first nine months of 2016 included $10.9 million of acquisition-related expenses. There were no acquisition-related expenses in the first nine months of 2017.

For the third quarter of 2017, Banner recorded $10.9 million in state and federal income tax expense for an effective tax rate of 30.3%, which reflects normal statutory tax rates reduced by the effect of tax-exempt income, certain tax credits and a $1.3 million annual return to provision adjustment related to filing our federal and state income tax returns.

Balance Sheet Review

Banner’s total assets increased to $10.44 billion at September 30, 2017, from $10.20 billion at June 30, 2017 and $9.84 billion a year ago. The total of securities and interest-bearing deposits held at other banks was $1.68 billion at September 30, 2017, compared to $1.66 billion at June 30, 2017 and $1.16 billion at December 31, 2016. The increase in the securities portfolio during the year reflects Banner's leveraging strategy as it crossed the $10 billion in assets threshold in 2017. 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 3.6 years at September 30, 2017, compared to 3.8 years at December 31, 2016 and 2.9 years at September 30, 2016.

“Net loans increased $222.4 million during the quarter and increased 5% year over year, with solid production in targeted loan types, including commercial business, commercial real estate, construction and development loans, residential real estate and consumer loans,” said Grescovich. “We see significant potential for growth in our loan origination pipelines due to the robust economic activity in the markets that we serve, particularly in the Pacific Northwest.”

Net loans receivable increased 3% to $7.69 billion at September 30, 2017, compared to $7.46 billion at June 30, 2017, and increased 5% compared to $7.31 billion a year ago. Commercial real estate and multifamily real estate loans increased slightly to $3.67 billion at September 30, 2017, compared to $3.62 billion at June 30, 2017, and increased 4% compared to $3.53 billion a year ago. Commercial business loans increased 2% to $1.31 billion at September 30, 2017, compared to $1.29 billion three months earlier and increased 10% compared to $1.19 billion a year ago. Agricultural business loans declined to $339.9 million at September 30, 2017, compared to $344.4 million three months earlier and $383.3 million a year ago. Total construction, land and land development loans increased 8% to $878.4 million at September 30, 2017, compared to $811.5 million at June 30, 2017, and increased 10% compared to $797.3 million a year earlier. Consumer loans increased to $701.2 million at September 30, 2017, compared to $687.8 million at June 30, 2017, and increased 7% compared to $657.2 million a year ago largely as a result of a successful second quarter campaign to generate additional home equity lines of credit. One- to four-family loans increased $69.5 million during the quarter to $869.6 million as a result of an increase in the amount of loans originated for the portfolio compared to loans sold in the secondary market.

Loans held for sale increased to $71.9 million at September 30, 2017, compared to $66.2 million at June 30, 2017, but decreased compared to $123.1 million at September 30, 2016. The volume of residential mortgage loans sold was $141.0 million in the current quarter compared to $131.0 million in the preceding quarter. Banner sold $86.0 million of multifamily loans during the quarter ended September 30, 2017 and $114.8 million during the preceding quarter. Loans held for sale at September 30, 2017 included $47.0 million of multifamily loans and $24.9 million of one- to four-family loans.

Total deposits were $8.54 billion at September 30, 2017, a modest increase compared to $8.48 billion at June 30, 2017, and a 5% increase compared to $8.11 billion a year ago, as strong core deposit growth was partially offset by continuing declines in certificates of deposit. Non-interest-bearing account balances were $3.38 billion at September 30, 2017, compared to $3.25 billion at June 30, 2017 and increased 6% compared to $3.19 billion a year ago. Interest-bearing transaction and savings accounts were $4.06 billion at September 30, 2017, compared to $4.02 billion at June 30, 2017 and increased 7% compared to $3.80 billion a year ago. Certificates of deposit were $1.10 billion at September 30, 2017, compared to $1.21 billion at June 30, 2017 and $1.12 billion a year earlier. Brokered deposits totaled $171.7 million at September 30, 2017, compared to $250.0 million at June 30, 2017 and $60.3 million a year ago. The increase in brokered deposits compared to a year ago provided funding for the purchase of investment securities in connection with Banner's leveraging strategy subsequent to December 31, 2016.

Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) increased 2% during the current quarter and increased 6% compared to September 30, 2016, reflecting additional account growth as well as increased balances from existing clients. Core deposits represented 87% of total deposits September 30, 2017 compared to 86% of total deposits both at June 30, 2017 and a year earlier. The average cost of deposits was 0.15% for the quarter ended September 30, 2017, the same as in the preceding quarter and a one basis point increase compared to the quarter ended September 30, 2016.

At September 30, 2017, total common shareholders' equity was $1.33 billion, or $39.90 per share, compared to $1.31 billion at June 30, 2017 and $1.33 billion a year ago. At September 30, 2017, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.06 billion, or 10.39% of tangible assets*, compared to $1.04 billion, or 10.46% of tangible assets, at June 30, 2017 and $1.05 billion, or 11.03% of tangible assets, a year ago. Banner's tangible book value per share* increased to $31.79 at September 30, 2017, compared to $31.14 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 September 30, 2017, Banner Corporation's common equity Tier 1 capital ratio was 11.16%, its Tier 1 leverage capital to average assets ratio was 11.49%, and its total capital to risk-weighted assets ratio was13.52%.

Credit Quality

The allowance for loan losses was $89.1 million at September 30, 2017, or 1.15% of total loans outstanding and 296% of non-performing loans compared to $84.2 million at September 30, 2016, or 1.14% of total loans outstanding and 309% of non-performing loans. Banner had net charge-offs of $1.5 million in the third quarter compared to net recoveries of $59,000 in the preceding quarter and net recoveries of $902,000 in the third 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, as well as the net charge offs, 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 $30.1 million at September 30, 2017, compared to $21.9 million at June 30, 2017 and $27.3 million a year ago. Real estate owned and other repossessed assets were $1.6 million at September 30, 2017, compared to $2.6 million at June 30, 2017 and $4.9 million a year ago.

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw Bank in 2015 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.

Banner's non-performing assets were $31.7 million, or 0.30% of total assets, at September 30, 2017, compared to $24.5 million, or 0.24% of total assets, at June 30, 2017 and $32.2 million, or 0.33% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $23.2 million at September 30, 2017, compared to $26.3 million at June 30, 2017 and $38.7 million a year ago.

Subsequent Event

On October 6, 2017, Banner Bank completed the sale of its seven branches and related assets and liabilities in Utah to People’s Intermountain Bank, a banking subsidiary of People’s Utah Bancorp (NASDAQ:PUB). Under the terms of the purchase and assumption agreement, the sale included approximately $255 million in loans and $160 million in deposits. The deposit premium is estimated to be approximately $13.8 million based on average deposits at closing.

Conference Call

Banner will host a conference call on Thursday, October 26, 2017, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10112453, or at www.bannerbank.com.

About the Company

Banner Corporation is a $10.4 billion bank holding company operating two commercial banks in four 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 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 Nine months ended
(in thousands except shares and per share data) Sep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
INTEREST INCOME:
Loans receivable $95,221 $94,795 $89,805 $281,304 $265,697
Mortgage-backed securities 6,644 6,239 4,803 17,529 15,467
Securities and cash equivalents 3,413 3,402 3,241 9,976 9,306
105,278 104,436 97,849 308,809 290,470
INTEREST EXPENSE:
Deposits 3,189 3,182 2,784 9,162 8,501
Federal Home Loan Bank advances 569 301 256 1,142 874
Other borrowings 84 83 82 241 234
Junior subordinated debentures 1,226 1,164 1,019 3,494 2,962
5,068 4,730 4,141 14,039 12,571
Net interest income before provision for loan losses 100,210 99,706 93,708 294,770 277,899
PROVISION FOR LOAN LOSSES 2,000 2,000 2,000 6,000 4,000
Net interest income 98,210 97,706 91,708 288,770 273,899
NON-INTEREST INCOME:
Deposit fees and other service charges 13,316 13,238 12,927 38,739 36,957
Mortgage banking operations 4,498 6,754 8,141 15,854 20,409
Bank owned life insurance 1,043 1,461 1,333 3,599 3,646
Miscellaneous 1,705 1,720 1,344 7,062 3,936
20,562 23,173 23,745 65,254 64,948
Net gain (loss) on sale of securities 270 (54) 891 230 531
Net change in valuation of financial instruments carried at fair value (493) (650) (1,124) (1,831) (1,472)
Total non-interest income 20,339 22,469 23,512 63,653 64,007
NON-INTEREST EXPENSE:
Salary and employee benefits 48,931 49,019 44,758 144,014 136,497
Less capitalized loan origination costs (4,331) (4,598) (4,953) (13,245) (14,110)
Occupancy and equipment 11,737 12,045 10,979 35,778 32,419
Information / computer data services 4,420 4,100 4,836 12,513 14,607
Payment and card processing services 5,839 5,792 5,878 16,651 16,164
Professional services 3,349 3,732 2,258 12,233 5,736
Advertising and marketing 2,130 1,766 2,282 5,225 6,489
Deposit insurance 1,101 1,071 890 3,438 3,539
State/municipal business and use taxes 780 279 956 1,857 2,564
Real estate operations 240 (363) (21) (1,089) 513
Amortization of core deposit intangibles 1,542 1,624 1,724 4,790 5,339
Miscellaneous 6,851 7,463 7,785 20,432 22,311
82,589 81,930 77,372 242,597 232,068
Acquisition related expenses 1,720 10,945
Total non-interest expense 82,589 81,930 79,092 242,597 243,013
Income before provision for income taxes 35,960 38,245 36,128 109,826 94,893
PROVISION FOR INCOME TAXES 10,883 12,791 12,277 35,502 32,312
NET INCOME $25,077 $25,454 $23,851 $74,324 $62,581
Earnings per share available to common shareholders:
Basic $0.76 $0.77 $0.70 $2.25 $1.84
Diluted $0.76 $0.77 $0.70 $2.25 $1.83
Cumulative dividends declared per common share $0.25 $1.25 $0.23 $1.75 $0.65
Weighted average common shares outstanding:
Basic 32,982,532 32,982,126 34,045,225 32,966,214 34,050,459
Diluted 33,079,099 33,051,527 34,124,611 33,061,172 34,104,875
(Decrease) increase in common shares outstanding (23,247) 125,167 (483,249) 61,397 (374,944)


FINANCIAL CONDITION Percentage Change
(in thousands except shares and per share data) Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016 Prior Qtr Prior Yr Qtr
ASSETS
Cash and due from banks $192,278 $196,178 $177,083 $161,710 (2.0)% 18.9%
Interest-bearing deposits 49,488 77,370 70,636 84,207 (36.0)% (41.2)%
Total cash and cash equivalents 241,766 273,548 247,719 245,917 (11.6)% (1.7)%
Securities - trading 23,466 24,950 24,568 30,889 (5.9)% (24.0)%
Securities - available for sale 1,339,057 1,290,159 800,917 1,006,414 3.8% 33.1%
Securities - held to maturity 264,752 268,050 267,873 271,975 (1.2)% (2.7)%
Federal Home Loan Bank stock 20,854 12,334 12,506 12,826 69.1% 62.6%
Loans held for sale 71,905 66,164 246,353 123,144 8.7% (41.6)%
Loans receivable 7,774,449 7,551,563 7,451,148 7,398,637 3.0% 5.1%
Allowance for loan losses (89,100) (88,586) (85,997) (84,220) 0.6% 5.8%
Net loans 7,685,349 7,462,977 7,365,151 7,314,417 3.0% 5.1%
Accrued interest receivable 33,837 30,722 30,178 30,345 10.1% 11.5%
Real estate owned held for sale, net 1,496 2,427 11,081 4,717 (38.4)% (68.3)%
Property and equipment, net 159,893 161,095 166,481 167,621 (0.7)% (4.6)%
Goodwill 244,583 244,583 244,583 244,583 % %
Other intangibles, net 25,219 26,813 30,162 31,934 (5.9)% (21.0)%
Bank-owned life insurance 161,648 160,609 158,936 158,831 0.6% 1.8%
Other assets 169,261 175,389 187,160 197,415 (3.5)% (14.3)%
Total assets $10,443,086 $10,199,820 $9,793,668 $9,841,028 2.4% 6.1%
LIABILITIES
Deposits:
Non-interest-bearing $3,379,841 $3,254,581 $3,140,451 $3,190,293 3.8% 5.9%
Interest-bearing transaction and savings accounts 4,058,435 4,022,909 3,935,630 3,798,668 0.9% 6.8%
Interest-bearing certificates 1,100,574 1,206,241 1,045,333 1,123,011 (8.8)% (2.0)%
Total deposits 8,538,850 8,483,731 8,121,414 8,111,972 0.6% 5.3%
Advances from Federal Home Loan Bank at fair value 263,349 50,212 54,216 62,342 424.5% 322.4%
Customer repurchase agreements and other borrowings 103,713 116,455 105,685 108,911 (10.9)% (4.8)%
Junior subordinated debentures at fair value 97,280 96,852 95,200 94,364 0.4% 3.1%
Accrued expenses and other liabilities 72,604 102,511 71,369 92,783 (29.2)% (21.7)%
Deferred compensation 40,279 40,208 40,074 39,385 0.2% 2.3%
Total liabilities 9,116,075 8,889,969 8,487,958 8,509,757 2.5% 7.1%
SHAREHOLDERS' EQUITY
Common stock 1,215,482 1,215,316 1,213,837 1,243,205 % (2.2)%
Retained earnings 111,405 94,541 95,328 80,053 17.8% 39.2%
Other components of shareholders' equity 124 (6) (3,455) 8,013 nm (98.5)%
Total shareholders' equity 1,327,011 1,309,851 1,305,710 1,331,271 1.3% (0.3)%
Total liabilities and shareholders' equity $10,443,086 $10,199,820 $9,793,668 $9,841,028 2.4% 6.1%
Common Shares Issued:
Shares outstanding at end of period 33,254,784 33,278,031 33,193,387 33,867,311
Common shareholders' equity per share (1) $39.90 $39.36 $39.34 $39.31
Common shareholders' tangible equity per share (1) (2) $31.79 $31.21 $31.06 $31.14
Common shareholders' tangible equity to tangible assets (2) 10.39% 10.46% 10.83% 11.03%
Consolidated Tier 1 leverage capital ratio 11.49% 11.51% 11.83% 11.40%


(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 two pages of the press release tables.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Percentage Change
LOANS Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016 Prior Qtr Prior Yr Qtr
Commercial real estate:
Owner occupied $1,369,130 $1,358,094 $1,352,999 $1,340,577 0.8% 2.1%
Investment properties 1,993,144 1,975,075 1,986,336 1,918,639 0.9% 3.9%
Multifamily real estate 311,706 288,442 248,150 266,883 8.1% 16.8%
Commercial construction 157,041 144,092 124,068 135,487 9.0% 15.9%
Multifamily construction 136,532 111,562 124,126 105,669 22.4% 29.2%
One- to four-family construction 399,361 380,782 375,704 363,586 4.9% 9.8%
Land and land development:
Residential 158,384 147,149 170,004 162,029 7.6% (2.2)%
Commercial 27,095 27,917 29,184 30,556 (2.9)% (11.3)%
Commercial business 1,311,409 1,286,204 1,207,879 1,187,848 2.0% 10.4%
Agricultural business including secured by farmland 339,932 344,412 369,156 383,275 (1.3)% (11.3)%
One- to four-family real estate 869,556 800,008 813,077 846,899 8.7% 2.7%
Consumer:
Consumer secured by one- to four-family real estate 535,300 527,623 493,211 497,643 1.5% 7.6%
Consumer-other 165,859 160,203 157,254 159,546 3.5% 4.0%
Total loans receivable $7,774,449 $7,551,563 $7,451,148 $7,398,637 3.0% 5.1%
Restructured loans performing under their restructured terms $12,744 $13,531 $18,907 $17,649
Loans 30 - 89 days past due and on accrual (1) $9,619 $15,564 $11,571 $12,668
Total delinquent loans (including loans on non-accrual), net (2) $34,792 $32,961 $30,553 $39,543
Total delinquent loans / Total loans outstanding 0.45% 0.44% 0.41% 0.53%

(1) Includes $1.0 million of purchased credit-impaired loans at September 30, 2017 compared to $835,000 at June 30, 2017, $470,000 at December 31, 2016 and $486,000 at September 30, 2016.
(2) Delinquent loans include $2.9 million of delinquent purchased credit-impaired loans September 30, 2017 compared to $2.5 million at June 30, 2017, $1.7 million at December 31, 2016 and $3.6 million at September 30, 2016.

LOANS BY GEOGRAPHIC LOCATION Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Washington $3,515,881 45.2% $3,425,627 45.3% $3,433,617 46.1% $3,415,413 46.2%
Oregon 1,561,723 20.1% 1,532,460 20.3% 1,505,369 20.2% 1,466,845 19.8%
California 1,381,572 17.8% 1,304,194 17.3% 1,239,989 16.6% 1,204,273 16.3%
Idaho 495,041 6.4% 487,378 6.5% 495,992 6.7% 517,607 7.0%
Utah 304,740 3.9% 294,467 3.9% 283,890 3.8% 292,088 3.9%
Other 515,492 6.6% 507,437 6.7% 492,291 6.6% 502,411 6.8%
Total loans $7,774,449 100.0% $7,551,563 100.0% $7,451,148 100.0% $7,398,637 100.0%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Quarters Ended Nine months ended
CHANGE IN THE Sep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $88,586 $86,527 $81,318 $85,997 $78,008
Provision for loan losses 2,000 2,000 2,000 6,000 4,000
Recoveries of loans previously charged off:
Commercial real estate 19 264 34 353 98
Multifamily real estate 11 11
Construction and land 73 1,024 673 1,180 1,268
One- to four-family real estate 8 109 482 262 1,052
Commercial business 577 171 433 921 1,775
Agricultural business, including secured by farmland 1 19 (138) 133 39
Consumer 98 101 73 293 529
776 1,699 1,557 3,153 4,761
Loans charged off:
Commercial real estate (584) (47) (631) (180)
One- to four-family real estate (92) (126)
Commercial business (491) (1,169) (333) (3,286) (643)
Agricultural business, including secured by farmland (1,001) (104) (1,264) (567)
Consumer (186) (320) (230) (869) (1,033)
(2,262) (1,640) (655) (6,050) (2,549)
Net (charge-offs) recoveries (1,486) 59 902 (2,897) 2,212
Balance, end of period $89,100 $88,586 $84,220 $89,100 $84,220
Net recoveries (charge-offs) / Average loans outstanding (0.019)% 0.001% 0.012% (0.038)% 0.030%


ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016
Specific or allocated loss allowance:
Commercial real estate $23,431 $24,232 $20,993 $19,846
Multifamily real estate 1,625 1,562 1,360 1,436
Construction and land 29,422 27,312 34,252 33,803
One- to four-family real estate 2,040 2,010 2,238 2,190
Commercial business 18,657 19,126 16,533 16,507
Agricultural business, including secured by farmland 3,949 3,808 2,967 2,833
Consumer 4,016 3,987 4,104 3,934
Total allocated 83,140 82,037 82,447 80,549
Unallocated 5,960 6,549 3,550 3,671
Total allowance for loan losses $89,100 $88,586 $85,997 $84,220
Allowance for loan losses / Total loans outstanding 1.15% 1.17% 1.15% 1.14%
Allowance for loan losses / Non-performing loans 296% 405% 381% 309%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial$11,632 $6,267 $8,237 $12,776
Multifamily 30
Construction and land1,726 1,726 1,748 1,747
One- to four-family2,878 2,955 2,263 3,414
Commercial business7,144 7,037 3,074 2,765
Agricultural business, including secured by farmland4,285 1,456 3,229 3,755
Consumer1,462 1,494 1,875 1,385
29,127 20,935 20,426 25,872
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial53 701
Multifamily 147 147
One- to four-family722 754 1,233 852
Commercial business51 77
Consumer101 108 72 425
927 939 2,153 1,424
Total non-performing loans30,054 21,874 22,579 27,296
Real estate owned (REO)1,496 2,427 11,081 4,717
Other repossessed assets145 181 166 164
Total non-performing assets$31,695 $24,482 $33,826 $32,177
Total non-performing assets to total assets0.30% 0.24% 0.35% 0.33%
Purchased credit-impaired loans, net$23,221 $26,267 $32,322 $38,674


Quarters Ended Nine months ended
REAL ESTATE OWNEDSep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
Balance, beginning of period$2,427 $3,040 $6,147 $11,081 $11,627
Additions from loan foreclosures 46 156 46 534
Additions from acquisitions 400
Additions from capitalized costs 54 54
Proceeds from dispositions of REO(961) (1,228) (1,699) (11,382) (8,021)
Gain on sale of REO30 721 281 1,953 981
Valuation adjustments in the period (206) (168) (256) (804)
Balance, end of period$1,496 $2,427 $4,717 $1,496 $4,717


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSIT COMPOSITION Percentage Change
Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016 Prior Qtr Prior Yr
Non-interest-bearing $3,379,841 $3,254,581 $3,140,451 $3,190,293 3.8% 5.9%
Interest-bearing checking 955,486 953,227 914,484 853,594 0.2% 11.9%
Regular savings accounts 1,577,292 1,530,517 1,523,391 1,387,123 3.1% 13.7%
Money market accounts 1,525,657 1,539,165 1,497,755 1,557,951 (0.9)% (2.1)%
Total interest-bearing transaction and savings accounts 4,058,435 4,022,909 3,935,630 3,798,668 0.9% 6.8%
Interest-bearing certificates 1,100,574 1,206,241 1,045,333 1,123,011 (8.8)% (2.0)%
Total deposits $8,538,850 $8,483,731 $8,121,414 $8,111,972 0.6% 5.3%


GEOGRAPHIC CONCENTRATION OF DEPOSITS Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Washington $4,654,406 54.6% $4,615,284 54.5% $4,347,644 53.6% $4,283,522 52.8%
Oregon 1,811,459 21.2% 1,806,639 21.3% 1,708,973 21.0% 1,737,754 21.4%
California 1,442,727 16.9% 1,445,621 17.0% 1,469,748 18.1% 1,491,903 18.4%
Idaho 465,104 5.4% 416,933 4.9% 447,019 5.5% 435,090 5.4%
Utah 165,154 1.9% 199,254 2.3% 148,030 1.8% 163,703 2.0%
Total deposits $8,538,850 100.0% $8,483,731 100.0% $8,121,414 100.0% $8,111,972 100.0%


INCLUDED IN TOTAL DEPOSITS Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016
Public non-interest-bearing accounts $86,262 $85,760 $92,789 $86,207
Public interest-bearing transaction & savings accounts 108,257 124,075 128,976 115,458
Public interest-bearing certificates 26,543 30,496 25,650 26,734
Total public deposits $221,062 $240,331 $247,415 $228,399
Total brokered deposits $171,718 $250,001 $34,074 $60,290


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
Actual Minimum to be categorized as "Adequately Capitalized" Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 2017 Amount Ratio Amount Ratio Amount Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets $1,239,520 13.52% $733,633 8.00% $917,041 10.00%
Tier 1 capital to risk-weighted assets 1,147,971 12.52% 550,224 6.00% 550,224 6.00%
Tier 1 leverage capital to average assets 1,147,971 11.49% 399,595 4.00% n/a n/a
Common equity tier 1 capital to risk-weighted assets 1,023,702 11.16% 412,668 4.50% n/a n/a
Banner Bank:
Total capital to risk-weighted assets 1,089,048 12.14% 717,580 8.00% 896,974 10.00%
Tier 1 capital to risk-weighted assets 999,815 11.15% 538,185 6.00% 717,580 8.00%
Tier 1 leverage capital to average assets 999,815 10.30% 388,308 4.00% 485,385 5.00%
Common equity tier 1 capital to risk-weighted assets 999,815 11.15% 403,639 4.50% 583,033 6.50%
Islanders Bank:
Total capital to risk-weighted assets 31,690 16.35% 15,507 8.00% 19,384 10.00%
Tier 1 capital to risk-weighted assets 29,375 15.15% 11,630 6.00% 15,507 8.00%
Tier 1 leverage capital to average assets 29,375 10.66% 11,018 4.00% 13,773 5.00%
Common equity tier 1 capital to risk-weighted assets 29,375 15.15% 8,723 4.50% 12,600 6.50%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREADQuarters Ended
September 30, 2017 June 30, 2017 September 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$6,086,554 $75,020 4.89% $5,987,295 $74,459 4.99% $5,843,381 $70,223 4.78%
Commercial/agricultural loans1,520,946 17,992 4.69% 1,503,548 18,179 4.85% 1,495,611 17,373 4.62%
Consumer and other loans140,758 2,209 6.23% 138,724 2,157 6.24% 142,977 2,209 6.15%
Total loans(1)7,748,258 95,221 4.88% 7,629,567 94,795 4.98% 7,481,969 89,805 4.78%
Mortgage-backed securities1,129,256 6,644 2.33% 1,067,255 6,239 2.34% 920,560 4,803 2.08%
Other securities473,808 3,192 2.67% 471,894 3,192 2.71% 472,159 3,050 2.57%
Interest-bearing deposits with banks51,607 159 1.22% 54,051 139 1.03% 86,868 98 0.45%
FHLB stock16,961 62 1.45% 14,472 71 1.97% 16,413 93 2.25%
Total investment securities1,671,632 10,057 2.39% 1,607,672 9,641 2.41% 1,496,000 8,044 2.14%
Total interest-earning assets9,419,890 105,278 4.43% 9,237,239 104,436 4.53% 8,977,969 97,849 4.34%
Non-interest-earning assets888,388 896,136 913,991
Total assets$10,308,278 $10,133,375 $9,891,960
Deposits:
Interest-bearing checking accounts$946,585 218 0.09% $927,375 210 0.09% $837,930 188 0.09%
Savings accounts1,557,475 538 0.14% 1,553,019 527 0.14% 1,371,911 449 0.13%
Money market accounts1,534,867 653 0.17% 1,534,551 689 0.18% 1,564,906 749 0.19%
Certificates of deposit1,151,725 1,780 0.61% 1,200,435 1,756 0.59% 1,173,630 1,398 0.47%
Total interest-bearing deposits5,190,652 3,189 0.24% 5,215,380 3,182 0.24% 4,948,377 2,784 0.22%
Non-interest-bearing deposits3,300,185 % 3,158,727 % 3,120,279 %
Total deposits8,490,837 3,189 0.15% 8,374,107 3,182 0.15% 8,068,656 2,784 0.14%
Other interest-bearing liabilities:
FHLB advances165,586 569 1.36% 103,848 301 1.16% 152,198 256 0.67%
Other borrowings116,297 84 0.29% 116,513 83 0.29% 111,016 82 0.29%
Junior subordinated debentures140,212 1,226 3.47% 140,212 1,164 3.33% 140,212 1,019 2.89%
Total borrowings422,095 1,879 1.77% 360,573 1,548 1.72% 403,426 1,357 1.34%
Total funding liabilities8,912,932 5,068 0.23% 8,734,680 4,730 0.22% 8,472,082 4,141 0.19%
Other non-interest-bearing liabilities(2)67,918 56,175 68,566
Total liabilities8,980,850 8,790,855 8,540,648
Shareholders' equity1,327,428 1,342,520 1,351,312
Total liabilities and shareholders' equity$10,308,278 $10,133,375 $9,891,960
Net interest income/rate spread $100,210 4.20% $99,706 4.31% $93,708 4.15%
Net interest margin 4.22% 4.33% 4.15%
Additional Key Financial Ratios:
Return on average assets 0.97% 1.01% 0.96%
Return on average equity 7.49% 7.60% 7.02%
Average equity/average assets 12.88% 13.25% 13.66%
Average interest-earning assets/average interest-bearing liabilities 167.83% 165.66% 167.76%
Average interest-earning assets/average funding liabilities 105.69% 105.75% 105.97%
Non-interest income/average assets 0.78% 0.89% 0.95%
Non-interest expense/average assets 3.18% 3.24% 3.18%
Efficiency ratio(4) 68.51% 67.06% 67.47%
Adjusted efficiency ratio(5) 66.26% 65.42% 63.61%


(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.
(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 SPREADNine months ended
September 30, 2017 September 30, 2016
Average BalanceInterest and DividendsYield/Cost(3) Average BalanceInterest and DividendsYield/Cost(3)
Interest-earning assets:
Mortgage loans$6,059,476 $222,028 4.90% $5,755,988 $207,881 4.82%
Commercial/agricultural loans1,496,549 52,717 4.71% 1,490,757 51,213 4.59%
Consumer and other loans139,181 6,559 6.30% 141,570 6,603 6.23%
Total loans(1)7,695,206 281,304 4.89% 7,388,315 265,697 4.80%
Mortgage-backed securities1,013,913 17,529 2.31% 976,267 15,467 2.12%
Other securities466,572 9,420 2.70% 450,142 8,752 2.60%
Interest-bearing deposits with banks46,022 392 1.14% 95,406 300 0.42%
FHLB stock15,666 164 1.40% 17,614 254 1.93%
Total investment securities1,542,173 27,505 2.38% 1,539,429 24,773 2.15%
Total interest-earning assets9,237,379 308,809 4.47% 8,927,744 290,470 4.35%
Non-interest-earning assets902,435 903,957
Total assets$10,139,814 $9,831,701
Deposits:
Interest-bearing checking accounts$923,757 627 0.09% $853,818 570 0.09%
Savings accounts1,556,075 1,588 0.14% 1,336,259 1,303 0.13%
Money market accounts1,530,675 1,994 0.17% 1,587,500 2,421 0.20%
Certificates of deposit1,147,387 4,953 0.58% 1,248,781 4,207 0.45%
Total interest-bearing deposits5,157,894 9,162 0.24% 5,026,358 8,501 0.23%
Non-interest-bearing deposits3,203,033 % 2,980,027 %
Total deposits8,360,927 9,162 0.15% 8,006,385 8,501 0.14%
Other interest-bearing liabilities:
FHLB advances133,365 1,142 1.14% 178,468 874 0.65%
Other borrowings113,664 241 0.28% 108,632 234 0.29%
Junior subordinated debentures140,212 3,494 3.33% 140,212 2,962 2.82%
Total borrowings387,241 4,877 1.68% 427,312 4,070 1.27%
Total funding liabilities8,748,168 14,039 0.21% 8,433,697 12,571 0.20%
Other non-interest-bearing liabilities(2)60,895 64,825
Total liabilities8,809,063 8,498,522
Shareholders' equity1,330,751 1,333,179
Total liabilities and shareholders' equity$10,139,814 $9,831,701
Net interest income/rate spread $294,770 4.26% $277,899 4.15%
Net interest margin 4.27% 4.16%
Additional Key Financial Ratios:
Return on average assets 0.98% 0.85%
Return on average equity 7.47% 6.27%
Average equity/average assets 13.12% 13.56%
Average interest-earning assets/average interest-bearing liabilities 166.59% 163.70%
Average interest-earning assets/average funding liabilities 105.59% 105.86%
Non-interest income/average assets 0.84% 0.87%
Non-interest expense/average assets 3.20% 3.30%
Efficiency ratio(4) 67.68% 71.08%
Adjusted efficiency ratio(5) 65.84% 65.23%


(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 Nine months ended
Sep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
Net interest income before provision for loan losses$100,210 $99,706 $93,708 $294,770 $277,899
Total non-interest income20,339 22,469 23,512 63,653 64,007
Total GAAP revenue120,549 122,175 117,220 358,423 341,906
Exclude net (gain) loss on sale of securities(270) 54 (891) (230) (531)
Exclude change in valuation of financial instruments carried at fair value493 650 1,124 1,831 1,472
Revenue from core operations (non-GAAP)$120,772 $122,879 $117,453 $360,024 $342,847


NON-INTEREST INCOME FROM CORE OPERATIONS Quarters Ended Nine months ended
Sep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
Total non-interest income (GAAP) $20,339 $22,469 $23,512 $63,653 $64,007
Exclude net (gain) loss on sale of securities (270) 54 (891) (230) (531)
Exclude change in valuation of financial instruments carried at fair value 493 650 1,124 1,831 1,472
Non-interest income from core operations (non-GAAP) $20,562 $23,173 $23,745 $65,254 $64,948


EARNINGS FROM CORE OPERATIONS Quarters Ended Nine months ended
Sep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
Net income (GAAP) $25,077 $25,454 $23,851 $74,324 $62,581
Exclude net (gain) loss on sale of securities (270) 54 (891) (230) (531)
Exclude change in valuation of financial instruments carried at fair value 493 650 1,124 1,831 1,472
Exclude acquisition-related costs 1,720 10,945
Exclude related tax benefit (80) (253) (703) (576) (4,261)
Total earnings from core operations (non-GAAP) $25,220 $25,905 $25,101 $75,349 $70,206
Diluted earnings per share (GAAP) $0.76 $0.77 $0.70 $2.25 $1.83
Diluted core earnings per share (non-GAAP) $0.76 $0.78 $0.74 $2.28 $2.06


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
ADJUSTED EFFICIENCY RATIO Quarters Ended Nine months ended
Sep 30, 2017 Jun 30, 2017 Sep 30, 2016 Sep 30, 2017 Sep 30, 2016
Non-interest expense (GAAP) $82,589 $81,930 $79,092 $242,597 $243,013
Exclude acquisition-related costs (1,720) (10,945)
Exclude CDI amortization (1,542) (1,624) (1,724) (4,790) (5,339)
Exclude state/municipal tax expense (780) (279) (956) (1,857) (2,564)
Exclude REO (loss) gain (240) 363 21 1,089 (513)
Adjusted non-interest expense (non-GAAP) $80,027 $80,390 $74,713 $237,039 $223,652
Net interest income before provision for loan losses (GAAP) $100,210 $99,706 $93,708 $294,770 $277,899
Non-interest income (GAAP) 20,339 22,469 23,512 63,653 64,007
Total revenue 120,549 122,175 117,220 358,423 341,906
Exclude net (gain) loss on sale of securities (270) 54 (891) (230) (531)
Exclude net change in valuation of financial instruments carried at fair value 493 650 1,124 1,831 1,472
Adjusted revenue (non-GAAP) $120,772 $122,879 $117,453 $360,024 $342,847
Efficiency ratio (GAAP) 68.51% 67.06% 67.47% 67.68% 71.08%
Adjusted efficiency ratio (non-GAAP) 66.26% 65.42% 63.61% 65.84% 65.23%


TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, 2016
Shareholders' equity (GAAP) $1,327,011 $1,309,851 $1,305,710 $1,331,271
Exclude goodwill and other intangible assets, net 269,802 271,396 274,745 276,517
Tangible common shareholders' equity (non-GAAP) $1,057,209 $1,038,455 $1,030,965 $1,054,754
Total assets (GAAP) $10,443,086 $10,199,820 $9,793,668 $9,841,028
Exclude goodwill and other intangible assets, net 269,802 271,396 274,745 276,517
Total tangible assets (non-GAAP) $10,173,284 $9,928,424 $9,518,923 $9,564,511
Common shareholders' equity to total assets (GAAP) 12.71% 12.84% 13.33% 13.53%
Tangible common shareholders' equity to tangible assets (non-GAAP) 10.39% 10.46% 10.83% 11.03%
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
Tangible common shareholders' equity $1,057,209 $1,038,455 $1,030,965 $1,054,754
Common shares outstanding at end of period 33,254,784 33,278,031 33,193,387 33,867,311
Common shareholders' equity (book value) per share (GAAP) $39.90 $39.36 $39.34 $39.31
Tangible common shareholders' equity (tangible book value) per share (non-GAAP) $31.79 $31.21 $31.06 $31.14


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

Source:Banner Corporation