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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): July 25, 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 July 25, 2018, Banner Corporation issued its earnings release for the quarter ended June 30, 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 July 25, 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: July 25, 2018
By: /s/ Peter J. Conner
 
Peter J. Conner
 
Executive Vice President, Treasurer and
Chief Financial Officer
 
 




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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

394367097_irgrouplogo.jpg
394367097_bannebankcorplogoline.jpg
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
PETER J. CONNER, CFO
 
(509) 527-3636
 
NEWS RELEASE
 
 
 
 
 
 
 
 
 
 
 
 

Banner Corporation Reports Second Quarter Net Income of $32.4 Million, or $1.00 Per Diluted Share;
Results Highlighted by Solid Growth in Revenue and Net Interest Margin Expansion

Walla Walla, WA - July 25, 2018 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that growth in earning assets and improved net interest margin contributed to continuing solid revenue growth. In addition, $2.1 million in miscellaneous non-interest income from the sale of its Poulsbo branch deposits and two former business locations contributed to the substantial increase in second quarter 2018 earnings. Net income in the second quarter of 2018 increased 13% to $32.4 million, or $1.00 per diluted share, compared to $28.8 million, or $0.89 per diluted share, in the preceding quarter and increased 27% when compared to $25.5 million, or $0.77 per diluted share, in the second quarter a year ago when federal income tax rates were substantially higher.
In the first six months of 2018, net income increased 24% to $61.2 million, or $1.89 per diluted share, compared to $49.2 million, or $1.49 per diluted share, in the first six months of 2017.
“Banner’s second quarter 2018 performance clearly demonstrates that our strategic plan continues to be effective, as we complete the build-out of the company’s support infrastructure and improve operating leverage,” stated Mark J. Grescovich, President and Chief Executive Officer. “Due to the hard work of our employees, we are successfully executing on our strategies and priorities to deliver sustainable profitability and revenue growth to shareholders. Our core operating performance continues to reflect the success of our proven client-acquisition strategies, which are producing strong core revenue and a healthy net interest margin. These factors contributed to a return on average assets of 1.25% for the quarter. Additionally, our continuing strong earnings trends allowed us to declare a special dividend of $0.50 per share in addition to the regular quarterly dividend of $0.35 per share, which were both paid on July 29, 2018, while effectively managing and maintaining a solid capital position.”
At June 30, 2018, Banner Corporation had $10.38 billion in assets, $7.59 billion in net loans and $8.53 billion in deposits. Banner operates 177 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
Second Quarter 2018 Highlights
Net income increased 13% to $32.4 million, or $1.00 per diluted share, compared to $28.8 million, or $0.89 per diluted share, in the preceding quarter and increased 27% compared to $25.5 million, or $0.77 per diluted share, in the second quarter a year ago.
Net interest income, before the provision for loan losses, increased 6% to $105.1 million, compared to $99.4 million in the preceding quarter and increased 5% from $99.7 million in the second quarter a year ago.
Net interest margin was 4.39% for the current quarter, compared to 4.35% in the preceding quarter and 4.33% in the second quarter a year ago.
Revenues were $126.3 million during the quarter ended June 30, 2018, $120.7 million during the preceding quarter and $120.1 million during the second quarter a year ago.
Return on average assets was 1.25% in the current quarter, compared to 1.16% in the preceding quarter and 1.01% in the second quarter a year ago.
Return on average equity was 10.25% in the current quarter, compared to 9.14% in the preceding quarter and 7.60% in the second quarter a year ago.
Provision for loan losses remained steady at $2.0 million, increasing the allowance for loan losses to $93.9 million or 1.22% of total loans compared to an allowance for loan losses of $88.6 million or 1.17% of total loans as of June 30, 2017.
Net loans receivable were $7.59 billion at June 30, 2018, compared to $7.46 billion at both March 31, 2018, and June 30, 2017.
Core deposits increased 1% compared to June 30, 2017, and represented 87% of total deposits at June 30, 2018.
Quarterly dividends to shareholders were $0.35 per share, and a special cash dividend of $0.50 per share was also declared.
Tangible common shareholders' equity per share* was $30.57 at June 30, 2018, compared to $30.54 at the preceding quarter end and $31.21 a year ago.
The ratio of tangible common shareholders' equity to tangible assets* remained strong at 9.79% at June 30, 2018, compared to 9.85% at the preceding quarter end and 10.46% a year ago.
Non-performing assets declined by $7.0 million to $16.5 million or 0.16% of total assets at June 30, 2018 and were $24.5 million or 0.24% of total assets a year ago.

*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), and references to revenues from core operations (which excludes fair value adjustments and gains and losses on the sale of securities) and adjusted efficiency ratio (which excludes fair value adjustments and gains and losses on the sale of securities from adjusted non-interest



BANR - Second Quarter 2018 Results
July 25, 2018
Page 2

income and excludes amortization of core deposit intangibles, real estate owned, gain (loss) and state/municipal business and use taxes from adjusted non-interest expense) 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.
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 May 11, 2018, Banner Bank completed the sale of its Poulsbo, Washington, branch deposits totaling $20.4 million to Liberty Bay Bank, recording a deposit premium of $249,000. In addition, during the second quarter of 2018 Banner Bank sold two former business locations, recording a combined net gain of $1.9 million.
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. Based on current debit card transaction volumes, Banner anticipates that the Durbin Amendment will have a $13 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%. Beginning in 2018 net interest income on investment securities is 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
“We benefited from rising interest rates during the quarter, which produced higher yields on loans and improved our net interest margin,” said Grescovich. Banner's net interest margin was 4.39% for the second quarter of 2018, a four basis point improvement compared to 4.35% in the preceding quarter and a six basis point improvement compared to 4.33% in the second quarter a year ago. Acquisition accounting adjustments, principally loan discount accretion, added six basis points to the net interest margin in the current quarter compared to eight basis points in the preceding quarter and 15 basis points in the second quarter a year ago. The total purchase discount for acquired loans was $18.1 million at June 30, 2018, a decrease from $19.4 million at March 31, 2018 and $25.8 million a year ago, primarily as a result of discount accretion. In the first six months of the year, Banner’s net interest margin expanded eight basis points to 4.37% compared to 4.29% in the first six months a year ago.
Average interest-earning asset yields increased 11 basis points to 4.70% compared to 4.59% for the preceding quarter and increased 17 basis points compared to 4.53% in the second quarter a year ago. Average loan yields increased 17 basis points to 5.15% compared to 4.98% for both the preceding quarter and second quarter a year ago. Loan discount accretion added eight basis points to loan yields in the second quarter, compared to ten basis points in the preceding quarter and 18 basis points in the second quarter a year ago. Deposit costs were 0.20% in the second quarter, a four basis point increase compared to the preceding quarter and a five basis point increase compared to the second quarter a year ago. The total cost of funds was 0.33% during the second quarter, an eight basis point increase compared to the preceding quarter and an 11 basis point increase compared to the second quarter a year ago largely reflecting increased borrowing costs.
Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, Banner recorded a $2.0 million provision for loan losses during the second quarter, the same as in both the preceding and year ago quarters as credit quality metrics remained very strong.
Deposit fees and other service charges were $12.0 million in the second quarter, compared to $11.3 million in the preceding quarter and $11.2 million in the second quarter a year ago. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $4.6 million in the second quarter compared to $4.9 million in the preceding quarter and $6.8 million in the second quarter of 2017. Home purchase activity accounted for 81% of second quarter 2018 one- to four-family mortgage loan originations.
Second quarter 2018 results included a $224,000 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, and $44,000 net gain on the sale of securities. In the preceding quarter, results included a $3.3 million net gain for fair value adjustments. In the second quarter a year ago, results included a $650,000 net loss for fair value adjustments and a $54,000 net loss on the sale of securities. Following the adoption of new accounting guidance, beginning in the preceding quarter, Banner no longer reflects changes in the fair value of its junior subordinated debentures related to instrument-specific credit risk in the Consolidated Statements



BANR - Second Quarter 2018 Results
July 25, 2018
Page 3

of Operations, but rather reports those changes in the Consolidated Statements of Comprehensive Income and includes them in total shareholders’ equity in the Consolidated Statements of Financial Condition.
Total revenues increased 5% to $126.3 million for the second quarter of 2018, compared to $120.7 million in the preceding quarter and $120.1 million in the second quarter a year ago. In the first six months of 2018, total revenues increased 6% to $247.0 million, compared to $234.0 million in the first six months of 2017. Revenues from core operations* (revenues excluding gains and losses on the sale of securities and the net change in valuation of financial instruments) increased to $126.0 million in the second quarter of 2018, compared to $117.4 million in the preceding quarter, and $120.8 million in the second quarter of 2017. In the first six months of 2018, revenues from core operations* increased to $243.4 million from $235.4 million in the first six months a year ago.
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 $21.2 million in the second quarter of 2018, compared to $21.4 million in the first quarter of 2018 and $20.4 million in the second quarter a year ago. In the first six months of 2018, total non-interest income was $42.6 million, compared to $39.4 million in the same period a year ago.
Banner’s total non-interest expense was $82.6 million in the second quarter of 2018, compared to $81.7 million in the preceding quarter and $79.9 million in the second 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 second quarter a year ago largely due to enhanced regulatory requirements attributable to compliance and risk management infrastructure build-out. Banner’s adjusted efficiency ratio* improved to 64.09% for the current quarter, compared to 67.42% in the prior quarter and 64.83% in the year ago quarter.
For the second quarter of 2018, Banner recorded $9.2 million in state and federal income tax expense for an effective tax rate of 22.1%, reflecting the new lower federal corporate income tax rate beginning in 2018, and for the year ago quarter, Banner recorded $12.8 million in state and federal income tax expense for an effective tax rate of 33.4%.
Balance Sheet Review
Banner’s total assets were $10.38 billion at June 30, 2018, compared to $10.32 billion at March 31, 2018, and $10.20 billion at June 30, 2017. The total of securities and interest-bearing deposits held at other banks was $1.74 billion at June 30, 2018, compared to $1.75 billion at March 31, 2018 and $1.66 billion at June 30, 2017. The increase in the securities portfolio during both the current quarter and preceding quarter compared to December 31, 2017, reflects Banner's renewed leveraging strategy as it crossed the $10 billion in total assets threshold. In the fourth quarter 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 4.0 years at June 30, 2018, compared to 3.5 years at June 30, 2017.
Net loans receivable increased 2% to $7.59 billion at June 30, 2018, compared to $7.46 billion at both March 31, 2018 and June 30, 2017. The sale of our Utah branches in the fourth quarter of 2017 included the sale of $253.8 million of loans. Commercial real estate and multifamily real estate loans increased slightly to $3.51 billion at June 30, 2018, compared to $3.48 billion at March 31, 2018, but decreased compared to $3.62 billion a year ago, reflecting significant payoffs of both owner occupied and investment commercial real estate loans, partially offset by growth in multifamily real estate loans. Commercial business loans increased modestly to $1.31 billion at June 30, 2018, compared to $1.30 billion three months earlier and increased 2% compared to $1.29 billion a year ago. Reflecting normal seasonal trends, agricultural business loans increased by 10% to $336.7 million at June 30, 2018, compared to $307.2 million three months earlier and were $344.4 million a year ago. Total construction, land and land development loans increased 3% to $980.4 million at June 30, 2018, compared to $948.7 million at March 31, 2018, and increased 21% compared to $811.5 million a year earlier. Consumer loans increased 2% to $706.8 million at June 30, 2018, compared to $693.0 million at March 31, 2018, and increased 3% compared to $687.8 million a year ago. One- to four-family loans increased modestly to $840.5 million compared to $833.6 million at March 31, 2018, and increased 5% compared to $800.0 million a year ago.
Loans held for sale decreased 44% to $78.8 million at June 30, 2018, compared to $141.8 million at March 31, 2018, but increased 19% compared to $66.2 million at June 30, 2017. The volume of one- to four- family residential mortgage loans sold remained relatively constant at $124.1 million in the current quarter compared to $124.5 million in the preceding quarter and was $131.1 million in the second quarter a year ago. During the current quarter Banner sold $135.7 million in multifamily loans compared to none during the quarter ended March 31, 2018, and $114.8 million in multifamily loans sold during the second quarter a year ago. Loans held for sale at June 30, 2018 included $51.3 million of multifamily loans and $27.6 million of one- to four-family loans.
Total deposits were $8.53 billion at June 30, 2018, compared to $8.54 billion at March 31, 2018, and increased modestly compared to $8.48 billion a year ago, as strong core deposit growth over the last year was partially offset by continuing declines in retail or non-brokered certificates of deposit. The sale of $20.4 million of Poulsbo Branch deposits during the current quarter contributed to the slight decline in deposits compared to the prior quarter. Compared to a year earlier, total deposits at June 30, 2018, were negatively impacted by the sale of the Utah branches during the fourth quarter of 2017 which included $160.3 million of deposits. Non-interest-bearing account balances decreased slightly to $3.35 billion at June 30, 2018, compared to $3.38 billion at March 31, 2018, and increased 3% compared to $3.25 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased 2% from the prior quarter and increased 1% compared to June 30, 2017, despite the sale of the Utah branches. Core deposits represented 87% of total deposits at June 30, 2018, compared to 88% of total deposits at March 31, 2018, and 86% of total deposits a year earlier. Certificates of deposit were $1.15 billion at June 30, 2018, compared to $1.02 million at March 31, 2018, and $1.21 billion a year earlier. Brokered deposits increased to $280.1 million at June 30, 2018, compared to $169.5 million at March 31, 2018, and were $250.0 million a year earlier. The average cost of deposits was 0.20% for the quarter ended June 30, 2018, compared to 0.16% in the preceding quarter and 0.15% in the quarter ended June 30, 2017.
At June 30, 2018, total common shareholders' equity was $1.25 billion, or $38.67 per share, compared to $1.25 billion at March 31, 2018, and $1.31 billion a year ago. At June 30, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $990.5 million,



BANR - Second Quarter 2018 Results
July 25, 2018
Page 4

or 9.79% of tangible assets*, compared to $990.2 million, or 9.85% of tangible assets, at March 31, 2018 and $1.04 billion, or 10.46% of tangible assets, a year ago. Banner's tangible book value per share* was $30.57 at June 30, 2018, compared to $31.21 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. There were no repurchases during the second quarter of 2018. Banner Corporation and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under the Basel III and Dodd Frank regulatory standards. At June 30, 2018, Banner Corporation's common equity Tier 1 capital ratio was 11.05%, its Tier 1 leverage capital to average assets ratio was 10.80%, and its total capital to risk-weighted assets ratio was 13.73%.
Credit Quality
“Credit quality remained strong again during the quarter, which further solidifies the moderate risk profile of our loan portfolio and positions us well for the future,” said Grescovich. The allowance for loan losses was $93.9 million at June 30, 2018, or 1.22% of total loans outstanding and 613% of non-performing loans compared to $92.2 million at March 31, 2018, or 1.22% of total loans outstanding and 410% of non-performing loans, and $88.6 million at June 30, 2017, or 1.17% of total loans outstanding and 405% of non-performing loans. Net loan charge-offs totaled $332,000 in the second quarter compared to net loan recoveries of $1.2 million in the preceding quarter and $59,000 in the second quarter a year ago. Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and 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 declined to $15.3 million at June 30, 2018, compared to $22.5 million at March 31, 2018 and $21.9 million a year ago. Real estate owned and other repossessed assets were $1.2 million at June 30, 2018, compared to $1.0 million at March 31, 2018 and $2.6 million a year ago.
In accordance with acquisition accounting, loans acquired from acquisitions 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. At June 30, 2018, the total purchase discount for acquired loans was $18.1 million.
Banner's non-performing assets were $16.5 million, or 0.16% of total assets, at June 30, 2018, compared to $23.5 million, or 0.23% of total assets, at March 31, 2018 and $24.5 million, or 0.24% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $18.1 million at June 30, 2018, compared to $19.3 million at March 31, 2018 and $26.3 million a year ago.
Conference Call
Banner will host a conference call on Thursday, July 26, 2018, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10121440, or at www.bannerbank.com.
About the Company
Banner Corporation is a $10.38 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



BANR - Second Quarter 2018 Results
July 25, 2018
Page 5

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.




BANR - Second Quarter 2018 Results
July 25, 2018
Page 6

RESULTS OF OPERATIONS
 
Quarters Ended
 
Six months ended
(in thousands except shares and per share data)
 
Jun 30, 2018
 
Mar 31, 2018
 
Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
 
 
 
 
 
 
 
 
 
 
 
INTEREST INCOME:
 
 
 
 
 
 
 
 
 
 
Loans receivable
 
$
99,853

 
$
94,022

 
$
94,795

 
$
193,875

 
$
186,083

Mortgage-backed securities
 
8,899

 
7,331

 
6,239

 
16,230

 
10,886

Securities and cash equivalents
 
3,671

 
3,467

 
3,402

 
7,138

 
6,563

 
 
112,423

 
104,820

 
104,436

 
217,243

 
203,532

INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Deposits
 
4,264

 
3,358

 
3,182

 
7,622

 
5,973

Federal Home Loan Bank advances
 
1,499

 
677

 
301

 
2,177

 
574

Other borrowings
 
49

 
70

 
83

 
119

 
157

Junior subordinated debentures
 
1,548

 
1,342

 
1,164

 
2,889

 
2,268

 
 
7,360

 
5,447

 
4,730

 
12,807

 
8,972

Net interest income before provision for loan losses
 
105,063

 
99,373

 
99,706

 
204,436

 
194,560

PROVISION FOR LOAN LOSSES
 
2,000

 
2,000

 
2,000

 
4,000

 
4,000

Net interest income
 
103,063

 
97,373

 
97,706

 
200,436

 
190,560

NON-INTEREST INCOME:
 
 

 
 
 
 

 
 

 
 

Deposit fees and other service charges
 
11,985

 
11,296

 
11,165

 
23,281

 
21,553

Mortgage banking operations
 
4,643

 
4,864

 
6,754

 
9,507

 
11,357

Bank owned life insurance
 
933

 
853

 
1,461

 
1,785

 
2,556

Miscellaneous
 
3,388

 
1,037

 
1,720

 
4,426

 
5,356

 
 
20,949

 
18,050

 
21,100

 
38,999

 
40,822

Net gain (loss) on sale of securities
 
44

 
4

 
(54
)
 
48

 
(41
)
Net change in valuation of financial instruments carried at fair value
 
224

 
3,308

 
(650
)
 
3,532

 
(1,338
)
Total non-interest income
 
21,217

 
21,362

 
20,396

 
42,579

 
39,443

NON-INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Salary and employee benefits
 
51,494

 
50,067

 
49,019

 
101,561

 
95,083

Less capitalized loan origination costs
 
(4,733
)
 
(4,011
)
 
(4,598
)
 
(8,744
)
 
(8,914
)
Occupancy and equipment
 
11,574

 
11,766

 
12,045

 
23,340

 
24,041

Information / computer data services
 
4,564

 
4,381

 
4,100

 
8,945

 
8,094

Payment and card processing services
 
3,731

 
3,700

 
3,719

 
7,431

 
6,942

Professional services
 
3,838

 
4,428

 
3,732

 
8,266

 
8,885

Advertising and marketing
 
2,141

 
1,830

 
1,766

 
3,971

 
3,095

Deposit insurance
 
1,021

 
1,341

 
1,071

 
2,362

 
2,337

State/municipal business and use taxes
 
816

 
713

 
279

 
1,529

 
1,078

Real estate operations
 
(319
)
 
439

 
(363
)
 
121

 
(1,329
)
Amortization of core deposit intangibles
 
1,382

 
1,382

 
1,624

 
2,764

 
3,248

Miscellaneous
 
7,128

 
5,670

 
7,463

 
12,797

 
13,577

Total non-interest expense
 
82,637

 
81,706

 
79,857

 
164,343

 
156,137

Income before provision for income taxes
 
41,643

 
37,029

 
38,245

 
78,672

 
73,866

PROVISION FOR INCOME TAXES
 
9,219

 
8,239

 
12,791

 
17,458

 
24,619

NET INCOME
 
$
32,424

 
$
28,790

 
$
25,454

 
$
61,214

 
$
49,247

Earnings per share available to common shareholders:
 
 

 
 
 
 

 
 

 
 

Basic
 
$
1.01

 
$
0.89

 
$
0.77

 
$
1.89

 
$
1.49

Diluted
 
$
1.00

 
$
0.89

 
$
0.77

 
$
1.89

 
$
1.49

Cumulative dividends declared per common share
 
$
0.85

 
$
0.35

 
$
1.25

 
$
1.20

 
$
1.50

Weighted average common shares outstanding:
 
 
 
 

 
 

 
 

 
 

Basic
 
32,250,514

 
32,397,568

 
32,982,126

 
32,323,635

 
32,957,920

Diluted
 
32,331,609

 
32,516,456

 
33,051,527

 
32,422,287

 
33,052,205

(Decrease) increase in common shares outstanding
 
(17,977
)
 
(302,812
)
 
125,167

 
(320,789
)
 
84,644




BANR - Second Quarter 2018 Results
July 25, 2018
Page 7

FINANCIAL  CONDITION
 
 
 
 
 
 
 
 
 
Percentage Change
(in thousands except shares and per share data)
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
195,652

 
$
188,418

 
$
199,624

 
$
196,178

 
3.8
 %
 
(0.3
)%
Interest-bearing deposits
 
53,773

 
53,630

 
61,576

 
77,370

 
0.3
 %
 
(30.5
)%
Total cash and cash equivalents
 
249,425

 
242,048

 
261,200

 
273,548

 
3.0
 %
 
(8.8
)%
Securities - trading
 
25,640

 
25,574

 
22,318

 
24,950

 
0.3
 %
 
2.8
 %
Securities - available for sale
 
1,400,312

 
1,406,505

 
919,485

 
1,290,159

 
(0.4
)%
 
8.5
 %
Securities - held to maturity
 
263,176

 
262,645

 
260,271

 
268,050

 
0.2
 %
 
(1.8
)%
Federal Home Loan Bank stock
 
19,916

 
18,036

 
10,334

 
12,334

 
10.4
 %
 
61.5
 %
Loans held for sale
 
78,833

 
141,808

 
40,725

 
66,164

 
(44.4
)%
 
19.1
 %
Loans receivable
 
7,684,732

 
7,556,046

 
7,598,884

 
7,551,563

 
1.7
 %
 
1.8
 %
Allowance for loan losses
 
(93,875
)
 
(92,207
)
 
(89,028
)
 
(88,586
)
 
1.8
 %
 
6.0
 %
Net loans receivable
 
7,590,857

 
7,463,839

 
7,509,856

 
7,462,977

 
1.7
 %
 
1.7
 %
Accrued interest receivable
 
34,004

 
32,824

 
31,259

 
30,722

 
3.6
 %
 
10.7
 %
Real estate owned held for sale, net
 
473

 
328

 
360

 
2,427

 
44.2
 %
 
(80.5
)%
Property and equipment, net
 
153,224

 
156,005

 
154,815

 
161,095

 
(1.8
)%
 
(4.9
)%
Goodwill
 
242,659

 
242,659

 
242,659

 
244,583

 
 %
 
(0.8
)%
Other intangibles, net
 
19,858

 
21,251

 
22,655

 
26,813

 
(6.6
)%
 
(25.9
)%
Bank-owned life insurance
 
164,225

 
163,519

 
162,668

 
160,609

 
0.4
 %
 
2.3
 %
Other assets
 
136,592

 
140,223

 
124,604

 
175,389

 
(2.6
)%
 
(22.1
)%
Total assets
 
$
10,379,194

 
$
10,317,264

 
$
9,763,209

 
$
10,199,820

 
0.6
 %
 
1.8
 %
LIABILITIES
 
 
 
 

 
 

 
 

 
 
 
 
Deposits:
 
 
 
 

 
 

 
 

 
 
 
 
Non-interest-bearing
 
$
3,346,777

 
$
3,383,439

 
$
3,265,544

 
$
3,254,581

 
(1.1
)%
 
2.8
 %
Interest-bearing transaction and savings accounts
 
4,032,283

 
4,141,268

 
3,950,950

 
4,022,909

 
(2.6
)%
 
0.2
 %
Interest-bearing certificates
 
1,148,607

 
1,018,355

 
966,937

 
1,206,241

 
12.8
 %
 
(4.8
)%
Total deposits
 
8,527,667

 
8,543,062

 
8,183,431

 
8,483,731

 
(0.2
)%
 
0.5
 %
Advances from Federal Home Loan Bank at fair value
 
239,190

 
192,195

 
202

 
50,212

 
24.5
 %
 
nm

Customer repurchase agreements and other borrowings
 
112,458

 
101,844

 
95,860

 
116,455

 
10.4
 %
 
(3.4
)%
Junior subordinated debentures at fair value
 
112,774

 
112,516

 
98,707

 
96,852

 
0.2
 %
 
16.4
 %
Accrued expenses and other liabilities
 
93,281

 
72,497

 
71,344

 
102,511

 
28.7
 %
 
(9.0
)%
Deferred compensation
 
40,814

 
41,027

 
41,039

 
40,208

 
(0.5
)%
 
1.5
 %
Total liabilities
 
9,126,184

 
9,063,141

 
8,490,583

 
8,889,969

 
0.7
 %
 
2.7
 %
SHAREHOLDERS' EQUITY
 
 
 
 

 
 

 
 

 
 
 


Common stock
 
1,173,656

 
1,172,960

 
1,187,127

 
1,215,316

 
0.1
 %
 
(3.4
)%
Retained earnings
 
84,485

 
79,773

 
90,535

 
94,541

 
5.9
 %
 
(10.6
)%
Other components of shareholders' equity
 
(5,131
)
 
1,390

 
(5,036
)
 
(6
)
 
nm

 
nm

Total shareholders' equity
 
1,253,010

 
1,254,123

 
1,272,626

 
1,309,851

 
(0.1
)%
 
(4.3
)%
Total liabilities and shareholders' equity
 
$
10,379,194

 
$
10,317,264

 
$
9,763,209

 
$
10,199,820

 
0.6
 %
 
1.8
 %
Common Shares Issued:
 
 
 
 

 
 

 
 

 
 
 
 
Shares outstanding at end of period
 
32,405,696

 
32,423,673

 
32,726,485

 
33,278,031

 
 
 
 
Common shareholders' equity per share (1)
 
$
38.67

 
$
38.68

 
$
38.89

 
$
39.36

 
 
 
 
Common shareholders' tangible equity per share (1) (2)
 
$
30.57

 
$
30.54

 
$
30.78

 
$
31.21

 
 
 
 
Common shareholders' tangible equity to tangible assets (2)
 
9.79
%
 
9.85
%
 
10.61
%
 
10.46
%
 
 
 
 
Consolidated Tier 1 leverage capital ratio
 
10.80
%
 
11.06
%
 
11.33
%
 
11.51
%
 
 
 
 
(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 - Second Quarter 2018 Results
July 25, 2018
Page 8

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
LOANS
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
$
1,256,730

 
$
1,278,814

 
$
1,284,363

 
$
1,358,094

 
(1.7
)%
 
(7.5
)%
Investment properties
 
1,920,790

 
1,876,937

 
1,937,423

 
1,975,075

 
2.3
 %
 
(2.7
)%
Multifamily real estate
 
330,384

 
321,039

 
314,188

 
288,442

 
2.9
 %
 
14.5
 %
Commercial construction
 
166,089

 
163,314

 
148,435

 
144,092

 
1.7
 %
 
15.3
 %
Multifamily construction
 
147,576

 
159,108

 
154,662

 
111,562

 
(7.2
)%
 
32.3
 %
One- to four-family construction
 
480,591

 
434,204

 
415,327

 
380,782

 
10.7
 %
 
26.2
 %
Land and land development:
 
 
 
 
 
 

 
 

 
 
 
 
Residential
 
163,335

 
167,783

 
164,516

 
147,149

 
(2.7
)%
 
11.0
 %
Commercial
 
22,849

 
24,331

 
24,583

 
27,917

 
(6.1
)%
 
(18.2
)%
Commercial business
 
1,312,424

 
1,296,691

 
1,279,894

 
1,286,204

 
1.2
 %
 
2.0
 %
Agricultural business including secured by farmland
 
336,709

 
307,243

 
338,388

 
344,412

 
9.6
 %
 
(2.2
)%
One- to four-family real estate
 
840,470

 
833,598

 
848,289

 
800,008

 
0.8
 %
 
5.1
 %
Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Consumer secured by one- to four-family real estate
 
536,007

 
522,826

 
522,931

 
527,623

 
2.5
 %
 
1.6
 %
Consumer-other
 
170,778

 
170,158

 
165,885

 
160,203

 
0.4
 %
 
6.6
 %
Total loans receivable
 
$
7,684,732

 
$
7,556,046

 
$
7,598,884

 
$
7,551,563

 
1.7
 %
 
1.8
 %
Restructured loans performing under their restructured terms
 
$
13,793

 
$
14,264

 
$
16,115

 
$
13,531

 
 
 
 
Loans 30 - 89 days past due and on accrual (1)
 
$
8,040

 
$
23,557

 
$
29,278

 
$
15,564

 
 
 
 
Total delinquent loans (including loans on non-accrual), net (2)
 
$
22,620

 
$
42,186

 
$
50,503

 
$
32,961

 
 
 
 
Total delinquent loans  /  Total loans receivable
 
0.29
%
 
0.56
%
 
0.66
%
 
0.44
%
 
 
 
 

(1) Includes $6,000 of purchased credit-impaired loans at June 30, 2018 compared to $1.5 million at March 31, 2018, $943,000 at December 31, 2017, and $835,000 at June 30, 2017.
(2) Delinquent loans include $1.0 million of delinquent purchased credit-impaired loans at June 30, 2018 compared to $2.3 million at March 31, 2018, $2.2 million at December 31, 2017, and $2.5 million at June 30, 2017.

LOANS BY GEOGRAPHIC LOCATION
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
 
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington
 
$
3,550,945

 
46.2%
 
$
3,490,646

 
46.2
%
 
$
3,508,542

 
46.2
%
 
$
3,425,627

 
45.3%
Oregon
 
1,601,939

 
20.9%
 
1,580,278

 
20.9
%
 
1,590,233

 
20.9
%
 
1,532,460

 
20.3%
California
 
1,477,293

 
19.2%
 
1,405,411

 
18.6
%
 
1,415,076

 
18.6
%
 
1,304,194

 
17.3%
Idaho
 
500,201

 
6.5%
 
481,972

 
6.4
%
 
492,603

 
6.5
%
 
487,378

 
6.5%
Utah
 
76,414

 
1.0%
 
83,637

 
1.1
%
 
73,382

 
1.0
%
 
294,467

 
3.9%
Other
 
477,940

 
6.2%
 
514,102

 
6.8
%
 
519,048

 
6.8
%
 
507,437

 
6.7%
Total loans receivable
 
$
7,684,732

 
100.0%
 
$
7,556,046

 
100.0
%
 
$
7,598,884

 
100.0
%
 
$
7,551,563

 
100.0%




BANR - Second Quarter 2018 Results
July 25, 2018
Page 9

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
  Quarters Ended
 
Six months ended
CHANGE IN THE
 
Jun 30, 2018
 
Mar 31, 2018
 
Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
92,207

 
$
89,028

 
$
86,527

 
$
89,028

 
$
85,997

Provision for loan losses
 
2,000

 
2,000

 
2,000

 
4,000

 
4,000

Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
216

 
1,352

 
264

 
1,568

 
334

Multifamily real estate
 

 

 
11

 

 
11

Construction and land
 
11

 
174

 
1,024

 
185

 
1,107

One- to four-family real estate
 
356

 
290

 
109

 
646

 
254

Commercial business
 
100

 
170

 
171

 
270

 
344

Agricultural business, including secured by farmland
 
41

 

 
19

 
41

 
132

Consumer
 
106

 
112

 
101

 
218

 
195

 
 
830

 
2,098

 
1,699

 
2,928

 
2,377

Loans charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
(299
)
 

 
(47
)
 
(299
)
 
(47
)
One- to four-family real estate
 

 
(16
)
 

 
(16
)
 

Commercial business
 
(375
)
 
(519
)
 
(1,169
)
 
(894
)
 
(2,795
)
Agricultural business, including secured by farmland
 
(329
)
 
(7
)
 
(104
)
 
(336
)
 
(263
)
Consumer
 
(159
)
 
(377
)
 
(320
)
 
(536
)
 
(683
)
 
 
(1,162
)
 
(919
)
 
(1,640
)
 
(2,081
)
 
(3,788
)
Net (charge-offs) recoveries
 
(332
)
 
1,179

 
59

 
847

 
(1,411
)
Balance, end of period
 
$
93,875

 
$
92,207

 
$
88,586

 
$
93,875

 
$
88,586

Net (charge-offs) recoveries / Average loans receivable
 
(0.004
)%
 
0.015
%
 
0.001
%
 
0.011
%
 
(0.018
)%


ALLOCATION OF
 
 
 
 
 
 
 
 
ALLOWANCE FOR LOAN LOSSES
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
Specific or allocated loss allowance:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
24,413

 
$
23,461

 
$
22,824

 
$
24,232

Multifamily real estate
 
3,718

 
2,592

 
1,633

 
1,562

Construction and land
 
27,034

 
28,766

 
27,568

 
27,312

One- to four-family real estate
 
3,932

 
3,779

 
2,055

 
2,010

Commercial business
 
19,141

 
19,885

 
18,311

 
19,126

Agricultural business, including secured by farmland
 
3,162

 
2,999

 
4,053

 
3,808

Consumer
 
5,725

 
5,514

 
3,866

 
3,987

Total allocated
 
87,125

 
86,996

 
80,310

 
82,037

Unallocated
 
6,750

 
5,211

 
8,718

 
6,549

Total allowance for loan losses
 
$
93,875

 
$
92,207

 
$
89,028

 
$
88,586

Allowance for loan losses / Total loans receivable
 
1.22
%
 
1.22
%
 
1.17
%
 
1.17
%
Allowance for loan losses / Non-performing loans
 
613
%
 
410
%
 
329
%
 
405
%






BANR - Second Quarter 2018 Results
July 25, 2018
Page 10


ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
NON-PERFORMING ASSETS
 
 
 
 
 
 
 
Loans on non-accrual status:
 
 
 
 
 
 
 
Secured by real estate:
 
 
 
 
 
 
 
Commercial
$
4,341

 
$
6,877

 
$
10,646

 
$
6,267

Construction and land
1,176

 
984

 
798

 
1,726

One- to four-family
2,281

 
2,815

 
3,264

 
2,955

Commercial business
2,673

 
3,037

 
3,406

 
7,037

Agricultural business, including secured by farmland
1,712

 
6,120

 
6,132

 
1,456

Consumer
1,176

 
1,237

 
1,297

 
1,494

 
13,359

 
21,070

 
25,543

 
20,935

Loans more than 90 days delinquent, still on accrual:
 
 
 

 
 

 
 

Secured by real estate:
 
 
 

 
 

 
 

Construction and land
784

 

 
298

 

One- to four-family
905

 
591

 
1,085

 
754

Commercial business
1

 
1

 
18

 
77

Agricultural business, including secured by farmland

 
820

 

 

Consumer
253

 
7

 
85

 
108

 
1,943

 
1,419

 
1,486

 
939

Total non-performing loans
15,302

 
22,489

 
27,029

 
21,874

Real estate owned (REO)
473

 
328

 
360

 
2,427

Other repossessed assets
733

 
694

 
107

 
181

Total non-performing assets
$
16,508

 
$
23,511

 
$
27,496

 
$
24,482

Total non-performing assets to total assets
0.16
%
 
0.23
%
 
0.28
%
 
0.24
%
Purchased credit-impaired loans, net
$
18,063

 
$
19,316

 
$
21,310

 
$
26,267


 
Quarters Ended
 
Six months ended
REAL ESTATE OWNED
Jun 30, 2018
 
Mar 31, 2018
 
Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
Balance, beginning of period
$
328

 
$
360

 
$
3,040

 
$
360

 
$
11,081

Additions from loan foreclosures
393

 
128

 
46

 
521

 
46

Additions from capitalized costs

 

 
54

 

 
54

Proceeds from dispositions of REO
(314
)
 

 
(1,228
)
 
(314
)
 
(10,421
)
Gain on sale of REO
66

 

 
721

 
66

 
1,923

Valuation adjustments in the period

 
(160
)
 
(206
)
 
(160
)
 
(256
)
Balance, end of period
$
473

 
$
328

 
$
2,427

 
$
473

 
$
2,427





BANR - Second Quarter 2018 Results
July 25, 2018
Page 11




ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEPOSIT COMPOSITION
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
 
Prior Qtr
 
Prior Yr
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
 
$
3,346,777

 
$
3,383,439

 
$
3,265,544

 
$
3,254,581

 
(1.1
)%
 
2.8
 %
Interest-bearing checking
 
1,012,519

 
1,043,840

 
971,137

 
953,227

 
(3.0
)%
 
6.2
 %
Regular savings accounts
 
1,635,080

 
1,637,814

 
1,557,500

 
1,530,517

 
(0.2
)%
 
6.8
 %
Money market accounts
 
1,384,684

 
1,459,614

 
1,422,313

 
1,539,165

 
(5.1
)%
 
(10.0
)%
Total interest-bearing transaction and savings accounts
 
4,032,283

 
4,141,268

 
3,950,950

 
4,022,909

 
(2.6
)%
 
0.2
 %
Interest-bearing certificates
 
1,148,607

 
1,018,355

 
966,937

 
1,206,241

 
12.8
 %
 
(4.8
)%
Total deposits
 
$
8,527,667

 
$
8,543,062

 
$
8,183,431

 
$
8,483,731

 
(0.2
)%
 
0.5
 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
 
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
Washington
 
$
4,735,357

 
55.6%
 
$
4,766,646

 
55.8%
 
$
4,506,249

 
55.0%
 
$
4,615,284

 
54.4%
Oregon
 
1,886,435

 
22.1%
 
1,868,043

 
21.9%
 
1,797,147

 
22.0%
 
1,806,639

 
21.3%
California
 
1,444,413

 
16.9%
 
1,454,421

 
17.0%
 
1,432,819

 
17.5%
 
1,445,621

 
17.0%
Idaho
 
461,462

 
5.4%
 
453,952

 
5.3%
 
447,216

 
5.5%
 
416,933

 
4.9%
Utah
 

 
—%
 

 
—%
 

 
—%
 
199,254

 
2.3%
Total deposits
 
$
8,527,667

 
100.0%
 
$
8,543,062

 
100.0%
 
$
8,183,431

 
100.0%
 
$
8,483,731

 
100.0%


INCLUDED IN TOTAL DEPOSITS
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Jun 30, 2017
Public non-interest-bearing accounts
 
$
86,040

 
$
78,714

 
$
86,987

 
$
85,760

Public interest-bearing transaction & savings accounts
 
114,457

 
111,597

 
111,732

 
124,075

Public interest-bearing certificates
 
24,390

 
24,928

 
23,685

 
30,496

Total public deposits
 
$
224,887

 
$
215,239

 
$
222,404

 
$
240,331

Total brokered deposits
 
$
280,055

 
$
169,523

 
$
57,228

 
$
250,001




 
 
 
 
 
 
 




BANR - Second Quarter 2018 Results
July 25, 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 JUNE 30, 2018
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Banner Corporation-consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
      Total capital to risk-weighted assets
 
$
1,190,024

 
13.73
%
 
$
693,399

 
8.00
%
 
$
866,749

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,093,700

 
12.62
%
 
520,049

 
6.00
%
 
520,049

 
6.00
%
      Tier 1 leverage capital to average assets
 
1,093,700

 
10.80
%
 
404,968

 
4.00
%
 
n/a

 
n/a

      Common equity tier 1 capital to risk-weighted assets
 
957,700

 
11.05
%
 
390,037

 
4.50
%
 
n/a

 
n/a

Banner Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
1,108,529

 
13.08
%
 
677,868

 
8.00
%
 
847,335

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,014,649

 
11.97
%
 
508,401

 
6.00
%
 
677,868

 
8.00
%
      Tier 1 leverage capital to average assets
 
1,014,649

 
10.31
%
 
393,726

 
4.00
%
 
492,157

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
1,014,649

 
11.97
%
 
381,301

 
4.50
%
 
550,768

 
6.50
%
Islanders Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
33,330

 
16.98
%
 
15,701

 
8.00
%
 
19,627

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
30,886

 
15.74
%
 
11,776

 
6.00
%
 
15,701

 
8.00
%
      Tier 1 leverage capital to average assets
 
30,886

 
11.03
%
 
11,202

 
4.00
%
 
14,002

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
30,886

 
15.74
%
 
8,832

 
4.50
%
 
12,757

 
6.50
%






BANR - Second Quarter 2018 Results
July 25, 2018
Page 13

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
June 30, 2018
 
March 31, 2018
 
June 30, 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
$
6,163,224

$
78,203

5.09
%
 
$
6,065,199

$
74,346

4.97
%
 
$
5,987,295

$
74,459

4.99
%
Commercial/agricultural loans
1,479,148

19,381

5.26
%
 
1,456,303

17,423

4.85
%
 
1,503,548

18,179

4.85
%
Consumer and other loans
141,401

2,269

6.44
%
 
140,627

2,253

6.50
%
 
138,724

2,157

6.24
%
Total loans(1)
7,783,773

99,853

5.15
%
 
7,662,129

94,022

4.98
%
 
7,629,567

94,795

4.98
%
Mortgage-backed securities
1,261,809

8,899

2.83
%
 
1,057,878

7,331