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Section 1: 8-K (8-K)

Document


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
PURSUANT TO SECTION 13 OR 15 (d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): April 23, 2018
 
Banner Corporation
(Exact name of registrant as specified in its charter)
 
Washington
    0-26584  
  91-1691604      
(State or other jurisdiction
(Commission
(I.R.S. Employer
of incorporation)
File Number)
Identification No.)
 
10 S. First Avenue
Walla Walla, Washington 99362
(Address of principal executive offices and zip code)
 
Registrant's telephone number (including area code) (509) 527-3636
 
Not Applicable
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions.

[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]





Item 2.02 Results of Operations and Financial Condition

On April 23, 2018, Banner Corporation issued its earnings release for the quarter ended March 31, 2018. A copy of the earnings release is furnished herewith as Exhibit 99.1, which is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(d)    Exhibits

The following exhibit is being furnished herewith and this list shall constitute the exhibit index:

99.1 Press Release of Banner Corporation dated April 23, 2018.






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
BANNER CORPORATION
 
 
 
 
 
 
Date: April 23, 2018
By: /s/ Lloyd W. Baker
 
Lloyd W. Baker
 
Executive Vice President and
Chief Financial Officer
 
 




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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

393144886_irgrouplogo.jpg
393144886_bannebankcorplogoline.jpg
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
LLOYD W. BAKER, CFO
 
(509) 527-3636
 
NEWS RELEASE
 
 
 
 
 
 
 
 
 
 
 
 


Banner Corporation Reports First Quarter Net Income of $28.8 Million, or $0.89 Per Diluted Share;
Highlighted by Strong Deposit Growth, Net Interest Margin Expansion and Solid Revenue Generation;

Walla Walla, WA - April 23, 2018 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that strong core deposit growth, a re-leveraged balance sheet and improved net interest margin contributed to continued solid revenue generation, which coupled with a significantly lower federal tax rate, resulted in substantially increased first quarter 2018 financial results. Net income in the first quarter of 2018 increased 21% to $28.8 million, or $0.89 per diluted share, compared to $23.8 million, or $0.72 per diluted share, in the first quarter a year ago. In the preceding quarter, following a revaluation of deferred tax assets due to the Tax Cuts and Jobs Act resulting in an additional tax expense of $42.6 million, or $1.30 per diluted share, Banner reported a net loss of $13.5 million, or $0.41 per diluted share.
“Banner’s first quarter operating performance continues to reflect the success of our proven client acquisition strategies, which are producing strong core earnings and a healthy net interest margin,” stated Mark J. Grescovich, President and Chief Executive Officer. “We are benefiting from the successful integration of our recent acquisitions, which have had a dramatic impact on the scale and reach of the company and are providing a great opportunity for revenue growth. Our larger and improved earning asset mix as well as higher asset yields and stable funding costs have resulted in an expanded net interest margin and increased net interest income. We also continued to enjoy strong deposit fee and service charge income and stable mortgage banking revenues. Overall, these factors contributed to a return on average assets of 1.16% for the quarter. Based on this solid performance, coupled with our strong tangible common equity ratio of 9.82%*, we increased our cash dividend in the quarter by 40% to $0.35 per share and repurchased nearly 270,000 shares of common stock.”
At March 31, 2018, Banner Corporation had $10.32 billion in assets, $7.46 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.
First Quarter 2018 Highlights
Net income increased 21% to $28.8 million, or $0.89 per diluted share, compared to $23.8 million, or $0.72 per diluted share, in the first quarter a year ago.
Net interest income, before the provision for loan losses, was $99.4 million, compared to $98.3 million in the preceding quarter and $94.9 million in the first quarter a year ago.
Net interest margin was 4.35% for the current quarter, compared to 4.18% in the preceding quarter and 4.25% in the first quarter a year ago.
Revenues were $120.7 million during the quarter ended March 31, 2018, $125.9 million during the preceding quarter and $113.9 million during the first quarter a year ago.
Revenues from core operations* were $117.4 million, compared to $117.1 million in the preceding quarter, and $114.6 million in the first quarter a year ago.
Return on average assets was 1.16% in the current quarter, compared to 0.97% in the first quarter a year ago.
Return on average equity was 9.14% in the current quarter, compared to 7.30% in the first quarter a year ago.
Provision for loan losses was $2.0 million, increasing the allowance for loan losses to $92.2 million or 1.22% of total loans.
Net loans receivable were $7.46 billion at March 31, 2018, compared to $7.51 billion at December 31, 2017, and increased 2% compared to $7.33 billion a year ago.
Core deposits increased 3% compared to March 31, 2017 and represented 88% of total deposits at March 31, 2018.
Increased quarterly cash dividend to shareholders by 40% to $0.35 per share.
Common shareholders' tangible equity per share* was $30.43 at March 31, 2018, compared to $30.78 at the preceding quarter end and $31.68 a year ago.
The ratio of tangible common shareholders' equity to tangible assets* remained strong at 9.82% at March 31, 2018, compared to 10.61% at the preceding quarter end and 10.72% a year ago.
Repurchased 269,711 shares of common stock at an average price of $56.93 per share.
Non-performing assets declined by $4.0 million to $23.5 million or 0.23% of total assets.

*Revenues from core operations and non-interest income from core operations (both of which exclude fair value adjustments, gains and losses on the sale of securities and gain on the sale of branches), 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



BANR - First Quarter 2018 Results
April 23, 2018
Page 2

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.
Certain reclassifications have been made to the 2017 Consolidated Financial Statements and/or schedules to conform to the 2018 presentation. These reclassifications have affected certain line items and ratios for the prior periods but have not changed net income or shareholders’ equity for those periods. The effect of these reclassifications is considered immaterial.
Significant Recent Initiatives and Events
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 $253.8 million in loans and $160.3 million in deposits.
During the fourth quarter of 2017, Banner recorded a one-time net tax charge of $42.6 million, or $1.30 per diluted share, related to the revaluation of deferred tax items as a result of the Tax Cuts and Jobs Act. This increase in income tax expense was reflected in operating results for the fourth quarter of 2017 and was in addition to the normal provision for income tax related to pre-tax net operating income.
In addition, during the fourth quarter Banner implemented a number of strategic balance sheet initiatives designed to keep its assets below $10 billion at December 31, 2017, in order to postpone the adverse impact of certain enhanced regulatory requirements and the Durbin Amendment to the Dodd-Frank Act limits on, among other things, debit card interchange fees. As previously disclosed, based on current debit card transaction volumes, Banner anticipates that the Durbin Amendment will have a $12 million annualized negative impact on pre-tax revenues commencing in July 2019. In December 2017, Banner sold approximately $470 million of investment securities in the available-for-sale portfolio, using the proceeds to fund loan originations and to pay down certain wholesale borrowings and maturing brokered deposits. Banner incurred pre-tax net losses of $2.3 million in connection with the sale of these investment securities, which produced tax benefits based upon the 2017 marginal federal income tax rate of 35%. The net interest income on investment securities beginning in 2018 was subject to the new lower marginal corporate federal income tax rate. In recent periods Banner has incurred a blended effective federal and state tax rate of 33% to 34%. As a result of the reduced marginal federal tax rate, Banner anticipates that its blended effective federal and state tax rate will be approximately 22% to 23% in 2018.
Income Statement Review
“Our net interest margin increased substantially during the quarter as we benefited from increased market interest rates which produced higher yields on loans while deposit costs remained nearly unchanged. Our net interest margin and net interest income also increased as a result of re-leveraging the balance sheet with higher-yielding securities,” said Grescovich. Banner's net interest margin was 4.35% for the first quarter of 2018, a 17 basis point improvement compared to 4.18% in the preceding quarter and a ten basis point improvement compared to 4.25% in the first quarter a year ago. Acquisition accounting adjustments, principally loan discount accretion, added eight basis points to the net interest margin in the current quarter compared to five basis points in the preceding quarter and ten basis points in the first quarter a year ago. The total purchase discount for acquired loans was $19.4 million at March 31, 2018, a decrease from $21.1 million at December 31, 2017 and $29.4 million a year ago, primarily as a result of discount accretion.
Average interest-earning asset yields increased 19 basis points to 4.59% compared to 4.40% for the preceding quarter and increased 15 basis points compared to 4.44% in the first quarter a year ago. Average loan yields increased 16 basis points to 4.98% compared to the preceding quarter and increased 18 basis points from the first quarter a year ago. Loan discount accretion added ten basis points to loan yields in the first quarter, compared to six basis points in the preceding quarter and 11 basis points in the first quarter a year ago. Deposit costs were 0.16% in the first quarter, a one basis point increase compared to the preceding quarter and a two basis point increase compared to the first quarter a year ago. The total cost of funds was 0.25% during the first quarter, a two basis point increase compared to the preceding quarter and a five basis point increase compared to the first quarter a year ago largely reflecting increased borrowing costs.
Primarily as a result of the origination of new loans and the renewal of acquired loans out of the discounted acquired loan portfolio, Banner recorded a $2.0 million provision for loan losses during the first quarter, the same as in both the preceding and year ago quarters as credit quality metrics remained very good.
Deposit fees and other service charges were $11.3 million in the first quarter, compared to $10.8 million in the preceding quarter and $10.4 million in the first quarter a year ago. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased modestly to $4.9 million in the first quarter compared to $5.0 million in the preceding quarter and increased compared to $4.6 million in the first quarter of 2017. Home purchase activity accounted for 72% of first quarter 2018 one- to four-family mortgage loan originations.
First quarter 2018 results included a $3.3 million net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally certain investment securities held for trading. In the preceding quarter, results included a $1.0 million net loss for fair value adjustments and a $2.3 million net loss on the sale of securities. In the first quarter a year ago, results included a $688,000 net loss for fair value adjustments that was partially offset by a $13,000 net gain on the sale of securities. Following the adoption of new accounting guidance, beginning in the current quarter we no longer reflect changes in the fair value of our junior subordinated debentures related to instrument-specific credit risk in the Consolidated Statements of Operations, but rather report those changes in the Consolidated Statements of Comprehensive Income and include them in total shareholders’ equity in the Consolidated Statements of Financial Condition.
Total revenues decreased 4% to $120.7 million for the first quarter of 2018, compared to $125.9 million in the preceding quarter which included a $12.2 million gain on the sale of our Utah branches, and increased 6% compared to $113.9 million in the first quarter a year ago. Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments and in the preceding quarter the gain



BANR - First Quarter 2018 Results
April 23, 2018
Page 3

on sale of the Utah branches) increased to $117.4 million in the first quarter of 2018, compared to $117.1 million in the preceding quarter, and $114.6 million in the first quarter of 2017.
Total non-interest income, which includes the changes in the valuation of financial instruments carried at fair value, gains and losses on the sale of securities, and the fourth quarter 2017 gain on sale of the Utah branches, was $21.4 million in the first quarter of 2018, compared to $27.7 million in the fourth quarter of 2017 and $19.0 million in the first quarter a year ago. Non-interest income from core operations,* which excludes gains and losses on sale of securities, net changes in the valuation of financial instruments and the fourth quarter 2017 gain on sale of the Utah branches, was $18.1 million in the first quarter of 2018, compared to $18.8 million for the fourth quarter of 2017 and $19.7 million in the first quarter a year ago.
Banner’s total non-interest expense was $81.7 million in the first quarter of 2018, compared to $82.5 million in the preceding quarter and $76.3 million in the first quarter of 2017. In addition to normal wage increases, the current and preceding quarter's non-interest expenses included increased salary and employee benefits as compared to the first quarter a year ago largely due to enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out. Similarly, all three quarters presented included, elevated costs for professional services related to these compliance and risk management activities.
For the first quarter of 2018, Banner recorded $8.2 million in state and federal income tax expense for an effective tax rate of 22.3%, reflecting the new lower federal corporate income tax rate. For the fourth quarter of 2017, Banner recorded $55.0 million in state and federal income tax expense, which, in addition to the normal provision for income taxes related to pre-tax income, included a $42.6 million net charge related to the revaluation of its deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act as well as a net credit of $1.7 million for the release of a valuation reserve on an acquisition-related net operating loss carryforward deferred tax asset.
Balance Sheet Review
Banner’s total assets were $10.32 billion at March 31, 2018, compared to $9.76 billion at December 31, 2017, and $10.07 billion at March 31, 2017. The total of securities and interest-bearing deposits held at other banks was $1.75 billion at March 31, 2018, compared to $1.26 billion at December 31, 2017 and $1.62 billion at March 31, 2017. The increase in the securities portfolio during the current quarter reflects Banner's renewed leveraging strategy as it crossed the $10 billion in total assets threshold. In the fourth quarters of 2017, 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, 2017, to postpone the adverse impact of the Durbin Amendment. The average effective duration of Banner's securities portfolio was approximately 3.9 years at March 31, 2018, compared to 3.8 years at March 31, 2017.
Net loans receivable decreased to $7.46 billion at March 31, 2018, compared to $7.51 billion at December 31, 2017; however, despite the sale of our Utah branches, which included the sale of $253.8 million of loans during the preceding quarter, net loans increased 2% compared to $7.33 billion a year ago. Commercial real estate and multifamily real estate loans decreased slightly to $3.48 billion at March 31, 2018, compared to $3.54 billion at December 31, 2017, and $3.63 billion a year ago, as we experienced significant payoffs of both owner occupied and investment commercial real estate loans which were partially offset by growth in multifamily real estate loans. Commercial business loans increased modestly to $1.30 billion at March 31, 2018, compared to $1.28 billion three months earlier and increased 6% compared to $1.22 billion a year ago. Reflecting normal seasonal trends agricultural business loans declined to $307.2 million at March 31, 2018, compared to $338.4 million three months earlier and were slightly less than the $313.4 million a year ago. Total construction, land and land development loans increased 5% to $948.7 million at March 31, 2018, compared to $907.5 million at December 31, 2017, and increased 18% compared to $803.7 million a year earlier. Consumer loans increased modestly to $693.0 million at March 31, 2018, compared to $688.8 million at December 31, 2017, and increased 7% compared to $649.7 million a year ago, in part due to a successful second quarter 2017 campaign to generate additional home equity lines of credit. One- to four-family loans decreased to $833.6 million compared to $848.3 million at December 31, 2017, but increased 4% compared to $803.0 million a year ago.
Loans held for sale increased 248% to $141.8 million at March 31, 2018, compared to $40.7 million at December 31, 2017, and increased 64% compared to $86.7 million at March 31, 2017. The volume of one- to four- family residential mortgage loans sold was $124.5 million in the current quarter compared to $141.1 million in the preceding quarter and $139.3 million in the first quarter a year ago. While production of multifamily loans was strong in the current quarter, no sales occurred during the current quarter resulting in a significant increase in loans held for sale. Banner did not sell any multifamily loans during the quarter ended March 31, 2018, compared to $74.1 million during the preceding quarter and $200.7 million during the first quarter last year. Loans held for sale at March 31, 2018 included $116.2 million of multifamily loans and $25.6 million of one- to four-family loans.
Total deposits increased 4% to $8.54 billion at March 31, 2018, compared to $8.18 billion at December 31, 2017, and increased modestly compared to $8.42 billion a year ago, as strong core deposit growth was partially offset by continuing declines in retail or non-brokered certificates of deposit. Compared to a year earlier, total deposits at March 31, 2018 were negatively impacted by the sale of the Utah branches which included $160.3 million of deposits. Non-interest-bearing account balances increased 4% to $3.38 billion at March 31, 2018, compared to $3.27 billion at December 31, 2017 and increased 5% compared to $3.21 billion a year ago. Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) increased 4% during the current quarter and increased 3% compared to March 31, 2017 despite the sale of the Utah branches. Core deposits represented 88% of total deposits at both March 31, 2018 and December 31, 2017. Core deposits were 86% of total deposits a year earlier. Certificates of deposit were $1.02 billion at March 31, 2018, compared to $966.9 million at December 31, 2017 and $1.14 billion a year earlier. Brokered deposits increased to $169.5 million at March 31, 2018, compared to $57.2 million at December 31, 2017 and were $171.5 million a year earlier. The average cost of deposits was 0.16% for the quarter ended March 31, 2018, compared to 0.15% in the preceding quarter and 0.14% in the quarter ended March 31, 2017.
At March 31, 2018, total common shareholders' equity was $1.25 billion, or $38.68 per share, compared to $1.27 billion at December 31, 2017 and $1.32 billion a year ago. At March 31, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $986.5 million, or 9.82% of tangible assets*, compared to $1.01 billion, or 10.61% of tangible assets, at December 31, 2017 and $1.05 billion, or 10.72% of tangible assets, a year ago. Banner's tangible book value per share* was $30.43 at March 31, 2018, compared to $31.68 per share a year ago.
During the first quarter of 2018, Banner repurchased 269,711 shares of its common stock at an average price per share of $56.93 for a total purchase price of $15.4 million. Banner Corporation and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized



BANR - First Quarter 2018 Results
April 23, 2018
Page 4

as “well-capitalized” under the Basel III and Dodd Frank regulatory standards. At March 31, 2018, Banner Corporation's common equity Tier 1 capital ratio was 10.68%, its Tier 1 leverage capital to average assets ratio was 11.06%, and its total capital to risk-weighted assets ratio was 13.28%.
Credit Quality
“While we have been effectively executing on our strategies to protect our net interest margin, grow client relationships, deliver sustainable profitability and prudently invest our capital, we have also focused on maintaining our moderate risk profile,” said Grescovich. “Again this quarter, our credit quality metrics reflect our moderate credit risk profile and our reserve and capital levels remain strong.”
The allowance for loan losses was $92.2 million at March 31, 2018, or 1.22% of total loans outstanding and 410% of non-performing loans compared to $89.0 million at December 31, 2017, or 1.17% of total loans outstanding and 329% of non-performing loans, and $86.5 million at March 31, 2017, or 1.17% of total loans outstanding and 479% of non-performing loans. Net loan recoveries totaled $1.2 million in the first quarter compared to net charge-offs of $2.1 million in the preceding quarter and net charge-offs of $1.5 million in the first quarter a year ago. Primarily as a result of the origination of new loans and the renewal of acquired loans out of the discounted acquired 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 $22.5 million at March 31, 2018, compared to $27.0 million at December 31, 2017 and $18.1 million a year ago. Real estate owned and other repossessed assets were $1.0 million at March 31, 2018, compared to $467,000 at December 31, 2017 and $3.2 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. At March 31, 2018, the total purchase discount for acquired loans was $19.3 million.
Banner's non-performing assets were $23.5 million, or 0.23% of total assets, at March 31, 2018, compared to $27.5 million, or 0.28% of total assets, at December 31, 2017 and $21.3 million, or 0.21% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $19.3 million at March 31, 2018, compared to $21.3 million at December 31, 2017 and $30.5 million a year ago.
Conference Call
Banner will host a conference call on Tuesday, April 24, 2018, at 8:00 a.m. PDT, to discuss its first 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 10118284, or at www.bannerbank.com.
About the Company
Banner Corporation is a $10.32 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



BANR - First Quarter 2018 Results
April 23, 2018
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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.




BANR - First Quarter 2018 Results
April 23, 2018
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RESULTS OF OPERATIONS
 
Quarters Ended
(in thousands except shares and per share data)
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
 
 
 
 
 
 
 
INTEREST INCOME:
 
 
 
 
 
 
Loans receivable
 
$
94,022

 
$
93,145

 
$
91,288

Mortgage-backed securities
 
7,331

 
7,006

 
4,647

Securities and cash equivalents
 
3,467

 
3,324

 
3,161

 
 
104,820

 
103,475

 
99,096

INTEREST EXPENSE:
 
 

 
 
 
 

Deposits
 
3,358

 
3,111

 
2,791

Federal Home Loan Bank advances
 
677

 
766

 
273

Other borrowings
 
70

 
77

 
74

Junior subordinated debentures
 
1,342

 
1,257

 
1,104

 
 
5,447

 
5,211

 
4,242

Net interest income before provision for loan losses
 
99,373

 
98,264

 
94,854

PROVISION FOR LOAN LOSSES
 
2,000

 
2,000

 
2,000

Net interest income
 
97,373

 
96,264

 
92,854

NON-INTEREST INCOME:
 
 

 
 
 
 

Deposit fees and other service charges
 
11,296

 
10,840

 
10,389

Mortgage banking operations
 
4,864

 
5,025

 
4,603

Bank owned life insurance
 
853

 
1,020

 
1,095

Miscellaneous
 
1,037

 
1,923

 
3,636

 
 
18,050

 
18,808

 
19,723

Net gain (loss) on sale of securities
 
4

 
(2,310
)
 
13

Net change in valuation of financial instruments carried at fair value
 
3,308

 
(1,013
)
 
(688
)
Gain on sale of branches, including related loans and deposits
 

 
12,189

 

Total non-interest income
 
21,362

 
27,674

 
19,048

NON-INTEREST EXPENSE:
 
 

 
 
 
 

Salary and employee benefits
 
50,067

 
48,082

 
46,063

Less capitalized loan origination costs
 
(4,011
)
 
(4,134
)
 
(4,316
)
Occupancy and equipment
 
11,766

 
12,088

 
11,996

Information / computer data services
 
4,381

 
4,731

 
3,994

Payment and card processing services
 
3,700

 
3,807

 
3,223

Professional services
 
4,428

 
5,301

 
5,152

Advertising and marketing
 
1,830

 
3,412

 
1,328

Deposit insurance
 
1,341

 
1,251

 
1,266

State/municipal business and use taxes
 
713

 
737

 
799

Real estate operations
 
439

 
(941
)
 
(966
)
Amortization of core deposit intangibles
 
1,382

 
1,457

 
1,624

Miscellaneous
 
5,670

 
6,710

 
6,118

Total non-interest expense
 
81,706

 
82,501

 
76,281

Income before provision for income taxes
 
37,029

 
41,437

 
35,621

PROVISION FOR INCOME TAXES
 
8,239

 
54,985

 
11,828

NET INCOME (LOSS)
 
$
28,790

 
$
(13,548
)
 
$
23,793

Earnings (Loss) per share available to common shareholders:
 
 

 
 
 
 

Basic
 
$
0.89

 
$
(0.41
)
 
$
0.72

Diluted
 
$
0.89

 
$
(0.41
)
 
$
0.72

Cumulative dividends declared per common share
 
$
0.35

 
$
0.25

 
$
0.25

Weighted average common shares outstanding:
 
 
 
 

 
 

Basic
 
32,397,568

 
32,655,973

 
32,933,444

Diluted
 
32,516,456

 
32,766,335

 
33,051,459

Decrease in common shares outstanding
 
(302,812
)
 
(528,299
)
 
(40,523
)



BANR - First Quarter 2018 Results
April 23, 2018
Page 7

FINANCIAL  CONDITION
 
 
 
 
 
 
 
Percentage Change
(in thousands except shares and per share data)
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
188,418

 
$
199,624

 
$
196,277

 
(5.6
)%
 
(4.0
)%
Interest-bearing deposits
 
53,630

 
61,576

 
104,431

 
(12.9
)%
 
(48.6
)%
Total cash and cash equivalents
 
242,048

 
261,200

 
300,708

 
(7.3
)%
 
(19.5
)%
Securities - trading
 
25,574

 
22,318

 
24,753

 
14.6
 %
 
3.3
 %
Securities - available for sale
 
1,406,505

 
919,485

 
1,223,764

 
53.0
 %
 
14.9
 %
Securities - held to maturity
 
262,645

 
260,271

 
266,391

 
0.9
 %
 
(1.4
)%
Federal Home Loan Bank stock
 
18,036

 
10,334

 
10,334

 
74.5
 %
 
74.5
 %
Loans held for sale
 
141,808

 
40,725

 
86,707

 
248.2
 %
 
63.5
 %
Loans receivable
 
7,556,046

 
7,598,884

 
7,421,255

 
(0.6
)%
 
1.8
 %
Allowance for loan losses
 
(92,207
)
 
(89,028
)
 
(86,527
)
 
3.6
 %
 
6.6
 %
Net loans
 
7,463,839

 
7,509,856

 
7,334,728

 
(0.6
)%
 
1.8
 %
Accrued interest receivable
 
32,824

 
31,259

 
30,312

 
5.0
 %
 
8.3
 %
Real estate owned held for sale, net
 
328

 
360

 
3,040

 
(8.9
)%
 
(89.2
)%
Property and equipment, net
 
156,005

 
154,815

 
162,467

 
0.8
 %
 
(4.0
)%
Goodwill
 
242,659

 
242,659

 
244,583

 
 %
 
(0.8
)%
Other intangibles, net
 
24,966

 
22,655

 
28,488

 
10.2
 %
 
(12.4
)%
Bank-owned life insurance
 
163,519

 
162,668

 
159,948

 
0.5
 %
 
2.2
 %
Other assets
 
136,508

 
124,604

 
192,155

 
9.6
 %
 
(29.0
)%
Total assets
 
$
10,317,264

 
$
9,763,209

 
$
10,068,378

 
5.7
 %
 
2.5
 %
LIABILITIES
 
 
 
 

 
 

 
 
 
 
Deposits:
 
 
 
 

 
 

 
 
 
 
Non-interest-bearing
 
$
3,383,439

 
$
3,265,544

 
$
3,213,044

 
3.6
 %
 
5.3
 %
Interest-bearing transaction and savings accounts
 
4,141,268

 
3,950,950

 
4,064,198

 
4.8
 %
 
1.9
 %
Interest-bearing certificates
 
1,018,355

 
966,937

 
1,144,718

 
5.3
 %
 
(11.0
)%
Total deposits
 
8,543,062

 
8,183,431

 
8,421,960

 
4.4
 %
 
1.4
 %
Advances from Federal Home Loan Bank at fair value
 
192,195

 
202

 
213

 
nm

 
nm

Customer repurchase agreements and other borrowings
 
101,844

 
95,860

 
120,245

 
6.2
 %
 
(15.3
)%
Junior subordinated debentures at fair value
 
112,516

 
98,707

 
96,040

 
14.0
 %
 
17.2
 %
Accrued expenses and other liabilities
 
72,497

 
71,344

 
66,201

 
1.6
 %
 
9.5
 %
Deferred compensation
 
41,027

 
41,039

 
40,315

 
 %
 
1.8
 %
Total liabilities
 
9,063,141

 
8,490,583

 
8,744,974

 
6.7
 %
 
3.6
 %
SHAREHOLDERS' EQUITY
 
 
 
 

 
 

 
 
 


Common stock
 
1,172,960

 
1,187,127

 
1,214,517

 
(1.2
)%
 
(3.4
)%
Retained earnings
 
79,773

 
90,535

 
110,783

 
(11.9
)%
 
(28.0
)%
Other components of shareholders' equity
 
1,390

 
(5,036
)
 
(1,896
)
 
nm

 
(173.3
)%
Total shareholders' equity
 
1,254,123

 
1,272,626

 
1,323,404

 
(1.5
)%
 
(5.2
)%
Total liabilities and shareholders' equity
 
$
10,317,264

 
$
9,763,209

 
$
10,068,378

 
5.7
 %
 
2.5
 %
Common Shares Issued:
 
 
 
 

 
 

 
 
 
 
Shares outstanding at end of period
 
32,423,673

 
32,726,485

 
33,152,864

 
 
 
 
Common shareholders' equity per share (1)
 
$
38.68

 
$
38.89

 
$
39.92

 
 
 
 
Common shareholders' tangible equity per share (1) (2)
 
$
30.43

 
$
30.78

 
$
31.68

 
 
 
 
Common shareholders' tangible equity to tangible assets (2)
 
9.82
%
 
10.61
%
 
10.72
%
 
 
 
 
Consolidated Tier 1 leverage capital ratio
 
11.06
%
 
11.33
%
 
11.79
%
 
 
 
 
(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.



BANR - First Quarter 2018 Results
April 23, 2018
Page 8

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
LOANS
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
$
1,278,814

 
$
1,284,363

 
$
1,361,095

 
(0.4
)%
 
(6.0
)%
Investment properties
 
1,876,937

 
1,937,423

 
2,011,618

 
(3.1
)%
 
(6.7
)%
Multifamily real estate
 
321,039

 
314,188

 
254,246

 
2.2
 %
 
26.3
 %
Commercial construction
 
163,314

 
148,435

 
141,505

 
10.0
 %
 
15.4
 %
Multifamily construction
 
159,108

 
154,662

 
114,728

 
2.9
 %
 
38.7
 %
One- to four-family construction
 
434,204

 
415,327

 
366,191

 
4.5
 %
 
18.6
 %
Land and land development:
 
 
 
 
 
 

 
 
 
 
Residential
 
167,783

 
164,516

 
151,649

 
2.0
 %
 
10.6
 %
Commercial
 
24,331

 
24,583

 
29,597

 
(1.0
)%
 
(17.8
)%
Commercial business
 
1,296,691

 
1,279,894

 
1,224,541

 
1.3
 %
 
5.9
 %
Agricultural business including secured by farmland
 
307,243

 
338,388

 
313,374

 
(9.2
)%
 
(2.0
)%
One- to four-family real estate
 
833,598

 
848,289

 
802,991

 
(1.7
)%
 
3.8
 %
Consumer:
 
 
 
 
 
 
 
 
 
 
Consumer secured by one- to four-family real estate
 
522,826

 
522,931

 
493,495

 
 %
 
5.9
 %
Consumer-other
 
170,158

 
165,885

 
156,225

 
2.6
 %
 
8.9
 %
Total loans receivable
 
$
7,556,046

 
$
7,598,884

 
$
7,421,255

 
(0.6
)%
 
1.8
 %
Restructured loans performing under their restructured terms
 
$
14,264

 
$
16,115

 
$
17,193

 
 
 
 
Loans 30 - 89 days past due and on accrual (1)
 
$
23,557

 
$
29,278

 
$
22,214

 
 
 
 
Total delinquent loans (including loans on non-accrual), net (2)
 
$
42,186

 
$
50,503

 
$
37,563

 
 
 
 
Total delinquent loans  /  Total loans outstanding
 
0.56
%
 
0.66
%
 
0.51
%
 
 
 
 

(1) Includes $1.5 million of purchased credit-impaired loans at March 31, 2018 compared to $943,000 at December 31, 2017, and $2.4 million at March 31, 2017.
(2) Delinquent loans include $2.3 million of delinquent purchased credit-impaired loans March 31, 2018 compared to $2.2 million at December 31, 2017, and $3.5 million at March 31, 2017.

LOANS BY GEOGRAPHIC LOCATION
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
 
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington
 
$
3,490,646

 
46.2%
 
$
3,508,542

 
46.2
%
 
$
3,401,005

 
45.8%
Oregon
 
1,580,278

 
20.9%
 
1,590,233

 
20.9
%
 
1,493,054

 
20.1%
California
 
1,405,411

 
18.6%
 
1,415,076

 
18.6
%
 
1,255,597

 
16.9%
Idaho
 
481,972

 
6.4%
 
492,603

 
6.5
%
 
471,519

 
6.4%
Utah
 
83,637

 
1.1%
 
73,382

 
1.0
%
 
281,379

 
3.8%
Other
 
514,102

 
6.8%
 
519,048

 
6.8
%
 
518,701

 
7.0%
Total loans
 
$
7,556,046

 
100.0%
 
$
7,598,884

 
100.0
%
 
$
7,421,255

 
100.0%




BANR - First Quarter 2018 Results
April 23, 2018
Page 9

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
  Quarters Ended
CHANGE IN THE
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
Balance, beginning of period
 
$
89,028

 
$
89,100

 
$
85,997

Provision for loan losses
 
2,000

 
2,000

 
2,000

Recoveries of loans previously charged off:
 
 
 
 
 
 
Commercial real estate
 
1,352

 
19

 
70

Construction and land
 
174

 
57

 
83

One- to four-family real estate
 
290

 
8

 
145

Commercial business
 
170

 
305

 
173

Agricultural business, including secured by farmland
 

 
1

 
113

Consumer
 
112

 
188

 
94

 
 
2,098

 
578

 
678

Loans charged off:
 
 
 
 
 
 
Commercial real estate
 

 
(549
)
 

One- to four-family real estate
 
(16
)
 
(38
)
 

Commercial business
 
(519
)
 
(517
)
 
(1,626
)
Agricultural business, including secured by farmland
 
(7
)
 
(1,110
)
 
(159
)
Consumer
 
(377
)
 
(436
)
 
(363
)
 
 
(919
)
 
(2,650
)
 
(2,148
)
Net (charge-offs) recoveries
 
1,179

 
(2,072
)
 
(1,470
)
Balance, end of period
 
$
92,207

 
$
89,028

 
$
86,527

Net (charge-offs) recoveries / Average loans outstanding
 
0.015
%
 
(0.027
)%
 
(0.019
)%


ALLOCATION OF
 
 
 
 
 
 
ALLOWANCE FOR LOAN LOSSES
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
Specific or allocated loss allowance:
 
 
 
 
 
 
Commercial real estate
 
$
23,461

 
$
22,824

 
$
20,472

Multifamily real estate
 
2,592

 
1,633

 
1,378

Construction and land
 
28,766

 
27,568

 
29,464

One- to four-family real estate
 
3,779

 
2,055

 
1,974

Commercial business
 
19,885

 
18,311

 
19,768

Agricultural business, including secured by farmland
 
2,999

 
4,053

 
3,245

Consumer
 
5,514

 
3,866

 
3,840

Total allocated
 
86,996

 
80,310

 
80,141

Unallocated
 
5,211

 
8,718

 
6,386

Total allowance for loan losses
 
$
92,207

 
$
89,028

 
$
86,527

Allowance for loan losses / Total loans outstanding
 
1.22
%
 
1.17
%
 
1.17
%
Allowance for loan losses / Non-performing loans
 
410
%
 
329
%
 
479
%






BANR - First Quarter 2018 Results
April 23, 2018
Page 10


ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
NON-PERFORMING ASSETS
 
 
 
 
 
Loans on non-accrual status:
 
 
 
 
 
Secured by real estate:
 
 
 
 
 
Commercial
$
6,877

 
$
10,646

 
$
6,910

Multifamily

 

 
147

Construction and land
984

 
798

 
1,775

One- to four-family
2,815

 
3,264

 
3,386

Commercial business
3,037

 
3,406

 
2,700

Agricultural business, including secured by farmland
6,120

 
6,132

 
1,012

Consumer
1,237

 
1,297

 
1,285

 
21,070

 
25,543

 
17,215

Loans more than 90 days delinquent, still on accrual:
 
 
 

 
 

Secured by real estate:
 
 
 

 
 

Construction and land

 
298

 

One- to four-family
591

 
1,085

 
545

Commercial business
1

 
18

 

Agricultural business, including secured by farmland
820

 

 

Consumer
7

 
85

 
297

 
1,419

 
1,486

 
842

Total non-performing loans
22,489

 
27,029

 
18,057

Real estate owned (REO)
328

 
360

 
3,040

Other repossessed assets
694

 
107

 
162

Total non-performing assets
$
23,511

 
$
27,496

 
$
21,259

Total non-performing assets to total assets
0.23
%
 
0.28
%
 
0.21
%
Purchased credit-impaired loans, net
$
19,316

 
$
21,310

 
$
30,501


 
Quarters Ended
REAL ESTATE OWNED
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
Balance, beginning of period
$
360

 
$
1,496

 
$
11,081

Additions from loan foreclosures
128

 

 

Proceeds from dispositions of REO

 
(2,092
)
 
(9,193
)
Gain on sale of REO

 
956

 
1,202

Valuation adjustments in the period
(160
)
 

 
(50
)
Balance, end of period
$
328

 
$
360

 
$
3,040





BANR - First Quarter 2018 Results
April 23, 2018
Page 11




ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEPOSIT COMPOSITION
 
 
 
 
 
 
 
Percentage Change
 
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
 
Prior Qtr
 
Prior Yr
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
 
$
3,383,439

 
$
3,265,544

 
$
3,213,044

 
3.6
%
 
5.3
 %
Interest-bearing checking
 
1,043,840

 
971,137

 
928,232

 
7.5
%
 
12.5
 %
Regular savings accounts
 
1,637,814

 
1,557,500

 
1,592,023

 
5.2
%
 
2.9
 %
Money market accounts
 
1,459,614

 
1,422,313

 
1,543,943

 
2.6
%
 
(5.5
)%
Total interest-bearing transaction and savings accounts
 
4,141,268

 
3,950,950

 
4,064,198

 
4.8
%
 
1.9
 %
Interest-bearing certificates
 
1,018,355

 
966,937

 
1,144,718

 
5.3
%
 
(11.0
)%
Total deposits
 
$
8,543,062

 
$
8,183,431

 
$
8,421,960

 
4.4
%
 
1.4
 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
 
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
Washington
 
$
4,766,646

 
55.8%
 
$
4,506,249

 
55.0%
 
$
4,619,457

 
54.9%
Oregon
 
1,868,043

 
21.9%
 
1,797,147

 
22.0%
 
1,746,143

 
20.7%
California
 
1,454,421

 
17.0%
 
1,432,819

 
17.5%
 
1,469,351

 
17.4%
Idaho
 
453,952

 
5.3%
 
447,216

 
5.5%
 
429,850

 
5.1%
Utah
 

 
—%
 

 
—%
 
157,159

 
1.9%
Total deposits
 
$
8,543,062

 
100.0%
 
$
8,183,431

 
100.0%
 
$
8,421,960

 
100.0%


INCLUDED IN TOTAL DEPOSITS
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
Public non-interest-bearing accounts
 
$
78,714

 
$
86,987

 
$
80,322

Public interest-bearing transaction & savings accounts
 
111,597

 
111,732

 
125,921

Public interest-bearing certificates
 
24,928

 
23,685

 
31,024

Total public deposits
 
$
215,239

 
$
222,404

 
$
237,267

Total brokered deposits
 
$
169,523

 
$
57,228

 
$
171,521




 
 
 
 
 
 
 




BANR - First Quarter 2018 Results
April 23, 2018
Page 12

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 MARCH 31, 2018
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Banner Corporation-consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
      Total capital to risk-weighted assets
 
$
1,176,192

 
13.28
%
 
$
708,592

 
8.00
%
 
$
885,739

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,081,536

 
12.21
%
 
531,444

 
6.00
%
 
531,444

 
6.00
%
      Tier 1 leverage capital to average assets
 
1,081,536

 
11.06
%
 
391,147

 
4.00
%
 
n/a

 
n/a

      Common equity tier 1 capital to risk-weighted assets
 
945,536

 
10.68
%
 
398,583

 
4.50
%
 
n/a

 
n/a

Banner Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
1,115,304

 
12.88
%
 
692,895

 
8.00
%
 
866,118

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,023,061

 
11.81
%
 
519,671

 
6.00
%
 
692,895

 
8.00
%
      Tier 1 leverage capital to average assets
 
1,023,061

 
10.76
%
 
380,234

 
4.00
%
 
475,292

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
1,023,061

 
11.81
%
 
389,753

 
4.50
%
 
562,977

 
6.50
%
Islanders Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
32,716

 
16.77
%
 
15,607

 
8.00
%
 
19,509

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
30,303

 
15.53
%
 
11,705

 
6.00
%
 
15,607

 
8.00
%
      Tier 1 leverage capital to average assets
 
30,303

 
11.03
%
 
10,985

 
4.00
%
 
13,731

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
30,303

 
15.53
%
 
8,779

 
4.50
%
 
12,681

 
6.50
%






BANR - First Quarter 2018 Results
April 23, 2018
Page 13

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
 
Average Balance
Interest and Dividends
Yield / Cost(3)
 
Average Balance
Interest and Dividends
Yield / Cost(3)
 
Average Balance
Interest and Dividends
Yield / Cost(3)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans
$
6,065,199

$
74,346

4.97
%
 
$
6,064,650

$
73,349

4.80
 %
 
$
6,104,779

$
72,549

4.82
%
Commercial/agricultural loans
1,456,303

17,423

4.85
%
 
1,454,639

17,549

4.79
 %
 
1,464,532

16,546

4.58
%
Consumer and other loans
140,627

2,253

6.50
%
 
144,412

2,247

6.17
 %
 
138,033

2,193

6.44
%
Total loans(1)
7,662,129

94,022

4.98
%
 
7,663,701

93,145

4.82
 %
 
7,707,344

91,288

4.80
%
Mortgage-backed securities
1,057,878

7,331

2.81
%
 
1,131,692

7,006

2.46
 %
 
842,071

4,647

2.24
%
Other securities
462,947

3,090

2.71
%
 
459,065

3,028

2.62
 %
 
453,793

3,037

2.71
%
Interest-bearing deposits with banks
64,512

231

1.45
%
 
60,109

191

1.26
 %
 
32,195

93

1.17
%
FHLB stock
16,549

146

3.58
%
 
18,496

105

2.25
 %
 
15,550

31

0.81
%
Total investment securities
1,601,886

10,798

2.73
%
 
1,669,362

10,330

2.46
 %
 
1,343,609

7,808

2.36
%
Total interest-earning assets
9,264,015

104,820

4.59
%
 
9,333,063

103,475

4.40
 %
 
9,050,953

99,096

4.44
%
Non-interest-earning assets
805,503

 
 
 
861,232

 
 
 
923,165

 
 
Total assets
$
10,069,518

 
 
 
$
10,194,295

 
 
 
$
9,974,118

 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
$
1,003,929

246

0.10
%
 
$
964,306

222

0.09
 %
 
$
896,764

200

0.09
%
Savings accounts
1,601,671

627

0.16
%
 
1,567,845

550

0.14
 %
 
1,557,734

523

0.14
%
Money market accounts
1,442,685

666

0.19
%
 
1,471,875

645

0.17
 %
 
1,522,470

651

0.17
%
Certificates of deposit
998,738

1,819

0.74
%
 
1,024,069

1,694

0.66
 %
 
1,089,316

1,417

0.53
%
Total interest-bearing deposits
5,047,023

3,358

0.27
%
 
5,028,095

3,111

0.25
 %
 
5,066,284

2,791

0.22
%
Non-interest-bearing deposits
3,282,686


%
 
3,325,452


 %
 
3,148,520


%
Total deposits
8,329,709

3,358

0.16
%
 
8,353,547

3,111

0.15
 %
 
8,214,804

2,791

0.14
%
Other interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
FHLB advances
155,540

677

1.77
%
 
204,502

766

1.49
 %
 
130,274

273

0.85
%
Other borrowings
101,111

70

0.28
%
 
106,678

77

0.29
 %
 
108,091

74

0.28
%
Junior subordinated debentures
140,212

1,342

3.88
%
 
140,212

1,257

3.56
 %
 
140,212

1,104

3.19
%
Total borrowings
396,863

2,089

2.13
%
 
451,392

2,100

1.85
 %
 
378,577

1,451

1.55
%
Total funding liabilities
8,726,572

5,447

0.25
%
 
8,804,939

5,211

0.23
 %
 
8,593,381

4,242

0.20
%
Other non-interest-bearing liabilities(2)
65,978

 
 
 
63,654

 
 
 
58,489

 
 
Total liabilities
8,792,550

 
 
 
8,868,593

 
 
 
8,651,870

 
 
Shareholders' equity
1,276,968

 
 
 
1,325,702

 
 
 
1,322,248

 
 
Total liabilities and shareholders' equity
$
10,069,518

 
 
 
$
10,194,295

 
 
 
$
9,974,118

 
 
Net interest income/rate spread
 
$
99,373

4.34
%
 
 
$
98,264

4.17
 %
 
 
$
94,854

4.24
%
Net interest margin
 
 
4.35
%
 
 
 
4.18
 %
 
 
 
4.25
%
Additional Key Financial Ratios:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
 
1.16
%
 
 
 
(0.53
)%
 
 
 
0.97
%
Return on average equity
 
 
9.14
%
 
 
 
(4.05
)%
 
 
 
7.30
%
Average equity/average assets
 
 
12.68
%
 
 
 
13.00
 %
 
 
 
13.26
%
Average interest-earning assets/average interest-bearing liabilities
 
 
170.17
%
 
 
 
170.33
 %
 
 
 
166.23
%
Average interest-earning assets/average funding liabilities
 
 
106.16
%
 
 
 
106.00
 %
 
 
 
105.32
%
Non-interest income/average assets
 
 
0.86
%
 
 
 
1.08
 %
 
 
 
0.77
%
Non-interest expense/average assets
 
 
3.29
%
 
 
 
3.21
 %
 
 
 
3.10
%
Efficiency ratio(4)
 
 
67.67
%
 
 
 
65.51
 %
 
 
 
66.97
%
Adjusted efficiency ratio(5)
 
 
67.42
%
 
 
 
69.40
 %
 
 
 
65.30
%
(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 amortization of core deposit intangibles (CDI), REO gain (loss), 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.



BANR - First Quarter 2018 Results
April 23, 2018
Page 14

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 OPERATIONS
Quarters Ended
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
Net interest income before provision for loan losses
$
99,373

 
$
98,264

 
$
94,854

Total non-interest income
21,362

 
27,674

 
19,048

Total GAAP revenue
120,735

 
125,938

 
113,902

Exclude net (gain) loss on sale of securities
(4
)
 
2,310

 
(13
)
Exclude change in valuation of financial instruments carried at fair value
(3,308
)
 
1,013

 
688

Exclude gain on sale of branches

 
(12,189
)
 

Revenue from core operations (non-GAAP)
$
117,423

 
$
117,072

 
$
114,577


NON-INTEREST INCOME FROM CORE OPERATIONS
 
Quarters Ended
 
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
Total non-interest income (GAAP)
 
$
21,362

 
$
27,674

 
$
19,048

Exclude net (gain) loss on sale of securities
 
(4
)
 
2,310

 
(13
)
Exclude change in valuation of financial instruments carried at fair value
 
(3,308
)
 
1,013

 
688

Exclude gain on sale of branches
 

 
(12,189
)
 

Non-interest income from core operations (non-GAAP)
 
$
18,050

 
$
18,808

 
$
19,723


EARNINGS FROM CORE OPERATIONS
 
Quarters Ended
 
 
Mar 31, 2018
 
Dec 31, 2017
 
Mar 31, 2017
Net income (GAAP)
 
$
28,790

 
$
(13,548
)
 
$
23,793

 Exclude net (gain) loss on sale of securities
 
(4
)
 
2,310

 
(13
)
Exclude change in valuation of financial instruments carried at fair value
 
(3,308
)
 
1,013

 
688

 Exclude gain on sale of branches
 

 
(12,189
)
 

Exclude related tax expense (benefit)
 
795

 
3,192

 
(243
)
Exclude deferred tax asset revaluation due to new tax law
 

 
42,630

 

Total earnings from core operations (non-GAAP)
 
$
26,273

 
$
23,408