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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): October 24, 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 October 24, 2018, Banner Corporation issued its earnings release for the quarter ended September 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 October 24, 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: October 24, 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

395464508_irgrouplogo.jpg
395464508_bannebankcorplogoline.jpg
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
PETER J. CONNER, CFO
 
(509) 527-3636
 
NEWS RELEASE
 
 
 
 
 
 
 
 
 
 
 
 

Banner Corporation Reports Third Quarter Net Income of $37.8 Million, or $1.17 Per Diluted Share;
Results Highlighted by Strong Loan and Core Deposit Growth, Net Interest Margin Expansion and Improved Operating Efficiency

Walla Walla, WA - October 24, 2018 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported that continued margin expansion, coupled with strong loan and core deposit growth, along with improved operating efficiency contributed to solid third quarter financial results. Net income in the third quarter of 2018 increased 16% to $37.8 million, or $1.17 per diluted share, compared to $32.4 million, or $1.00 per diluted share, in the preceding quarter and increased 51% when compared to $25.1 million, or $0.76 per diluted share, in the third quarter a year ago when federal income tax rates were substantially higher. Third quarter results include $1.0 million of acquisition-related expense, compared to no acquisition expenses in the preceding or year ago quarter.
In the first nine months of 2018, net income increased 33% to $99.0 million, or $3.05 per diluted share, compared to $74.3 million, or $2.25 per diluted share, in the first nine months of 2017.
“Our third quarter 2018 performance clearly demonstrates that execution of our strategic plan is effective and continues to build shareholder value. Our focus on growing new client relationships adds to our core funding position and promotes client loyalty through our responsive service model,” stated Mark J. Grescovich, President and Chief Executive Officer. "In addition, we recently announced our agreement to acquire Skagit Bancorp, Inc., the holding company for Skagit Bank. This transaction will expand Banner’s presence and density in the attractive North Sound markets of the Pacific Northwest and will represent a complementary fit, both strategically and culturally, with Banner’s business model. We expect the combination of Banner and Skagit to enhance our already strong core deposit base, provide the opportunity to create operational efficiencies, and enhance the value of the combined company while offering Skagit Bank customers a broader product offering, increased lending limits and an expanded branch delivery system that stretches throughout the four states of Washington, Oregon, Idaho and California.”
At September 30, 2018, Banner Corporation had $10.51 billion in assets, $7.73 billion in net loans and $8.69 billion in deposits. Banner operates 171 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
Third Quarter 2018 Highlights
Net income increased 16% to $37.8 million, or $1.17 per diluted share, compared to $32.4 million, or $1.00 per diluted share, in the preceding quarter and increased 51% compared to $25.1 million, or $0.76 per diluted share, in the third quarter a year ago.
Net interest income, before the provision for loan losses, increased 4% to $109.1 million, compared to $105.1 million in the preceding quarter and increased 9% from $100.2 million in the third quarter a year ago.
Net interest margin was 4.48% for the current quarter, compared to 4.39% in the preceding quarter and 4.22% in the third quarter a year ago.
Revenues were $129.5 million during the quarter ended September 30, 2018, $126.3 million during the preceding quarter and $118.3 million during the third quarter a year ago.
Return on average assets was 1.43% in the current quarter, compared to 1.25% in the preceding quarter and 0.97% in the third quarter a year ago.
Return on average equity was 11.78% in the current quarter, compared to 10.25% in the preceding quarter and 7.49% in the third quarter a year ago.
Provision for loan losses remained steady at $2.0 million, increasing the allowance for loan losses to $95.3 million or 1.22% of total loans compared to an allowance for loan losses of $89.1 million or 1.15% of total loans as of September 30, 2017.
Loans receivable increased 2% to $7.82 billion at September 30, 2018 compared to $7.68 billion at June 30, 2018.
Core deposits increased 2% compared to June 30, 2018 and represented 86% of total deposits at September 30, 2018.
Quarterly dividends to shareholders for the current quarter were $0.38 per share, an increase of 9% over the regular dividend of $0.35 per share in the second quarter 2018.
Tangible common shareholders' equity per share* was $31.20 at September 30, 2018, compared to $30.57 at the preceding quarter end and $31.79 a year ago.
The ratio of tangible common shareholders' equity to tangible assets* remained strong at 9.86% at September 30, 2018, compared to 9.79% at the preceding quarter end and 10.39% at the end of the third quarter a year ago.
Non-performing assets were $16.7 million, or 0.16% of total assets, at September 30, 2018, and were $31.7 million, or 0.30% of total assets at September 30, 2017.




BANR - Third Quarter 2018 Results
October 24, 2018
Page 2

*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 acquisition-related costs, fair value adjustments and gains and losses on the sale of securities) and the adjusted efficiency ratio (which excludes fair value adjustments and gains and losses on the sale of securities from adjusted non-interest 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 July 25, 2018, Banner and Skagit Bancorp, Inc. (“Skagit”), the holding company for Skagit Bank, a Washington state-chartered commercial bank, entered into a definitive merger agreement pursuant to which Banner will acquire Skagit in an all-stock transaction, subject to the terms and conditions set forth therein. Under the merger agreement, Skagit will merge with and into Banner, and immediately thereafter Skagit Bank will merge with and into Banner Bank. The transaction is expected to close on or about November 1, 2018, subject to customary closing conditions.
Skagit Bank is a 60-year-old community bank based in the North Sound region of the Pacific Northwest focused on developing and serving long term consumer and business clients. At September 30, 2018, Skagit Bank had assets of $919 million, a diverse and high-quality loan portfolio of $604 million, and a low-cost deposit base of $819 million with 11 retail branches along the I-5 corridor from Seattle to the Canadian border. Banner expects the transaction to be immediately accretive to earnings per share, excluding one-time transaction expenses. The combined company will have approximately $11.4 billion in assets.
On October 2, 2018, Banner announced that it had received all regulatory approvals required to consummate the proposed transaction, including the written approval of the Federal Deposit Insurance Corporation and the Washington Department of Financial Institutions, and written confirmation from the Board of Governors of the Federal Reserve System that no application was required to be filed with that agency. On October 15, 2018, the shareholders of Skagit approved the definitive merger agreement.
Income Statement Review
“The rising interest rate environment contributed to higher yields on loans and improved our net interest margin again this quarter,” said Grescovich. Banner's net interest margin was 4.48% for the third quarter of 2018, a nine basis point improvement compared to 4.39% in the preceding quarter and a 26 basis point improvement compared to 4.22% in the third quarter a year ago. Acquisition accounting adjustments added 12 basis points to the net interest margin in the current quarter compared to six basis points in the preceding quarter and ten basis points in the third quarter a year ago. The total purchase discount for acquired loans was $15.4 million at September 30, 2018, a decrease from $18.1 million at June 30, 2018 and a decrease compared to $23.4 million at September 30, 2017. In the first nine months of the year, Banner’s net interest margin expanded 14 basis points to 4.41% compared to 4.27% in the first nine months a year ago.
Average interest-earning asset yields increased 13 basis points to 4.83% compared to 4.70% for the preceding quarter and increased 40 basis points compared to 4.43% in the third quarter a year ago. Average loan yields increased 16 basis points to 5.31% compared to 5.15% in the preceding quarter and increased 43 basis points compared to 4.88% in the third quarter a year ago. Loan discount accretion added 15 basis points to loan yields in the third quarter of 2018, compared to eight basis points in the preceding quarter and 12 basis points in the third quarter a year ago. Deposit costs were 0.25% in the third quarter of 2018, a five basis point increase compared to the preceding quarter and a ten basis point increase compared to the third quarter a year ago. The total cost of funds was 0.37% during the third quarter of 2018, a four basis point increase compared to the preceding quarter and a 14 basis point increase compared to the third quarter a year ago largely reflecting increased use of brokered deposits and the impacts of the rising rate environment.
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 third quarter, the same as in both the preceding and year ago quarters as credit quality metrics remained strong.
Deposit fees and other service charges were $12.3 million in the third quarter, compared to $12.0 million in the preceding quarter and $11.1 million in the third quarter a year ago. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $5.8 million in the third quarter compared to $4.6 million in the preceding quarter and $4.5 million in the third quarter of 2017. Home purchase activity accounted for 78% of third quarter 2018 one- to four-family mortgage loan originations compared to 81% in the prior quarter and 77% in the third quarter of 2017. Death benefits accounted for an $759,000 increase in Bank owned life insurance income during the quarter.
Banner’s third quarter 2018 results included a $45,000 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. In the preceding quarter, results included a $224,000 net gain for fair value adjustments and a $44,000 net gain on the sale of securities. In the third quarter a year ago, results included a $493,000 net loss for fair value adjustments and a $270,000 net gain on the sale of securities. Following the adoption of new accounting guidance, beginning in the first quarter of 2018, Banner no longer reflects changes in the fair value of its junior subordinated debentures related to instrument-specific credit risk in the Consolidated Statements 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.



BANR - Third Quarter 2018 Results
October 24, 2018
Page 3

Total revenues increased 3% to $129.5 million for the third quarter of 2018, compared to $126.3 million in the preceding quarter and increased 9% compared to $118.3 million in the third quarter a year ago. In the first nine months of 2018, total revenues increased 7% to $376.5 million, compared to $352.3 million in the first nine 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 $129.4 million in the third quarter of 2018, compared to $126.0 million in the preceding quarter, and $118.5 million in the third quarter of 2017. In the first nine months of 2018, revenues from core operations* increased to $372.9 million from $353.9 million in the first nine 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 $20.4 million in the third quarter of 2018, compared to $21.2 million in the second quarter of 2018 and $18.1 million in the third quarter a year ago. In the first nine months of 2018, total non-interest income was $63.0 million, compared to $57.5 million in the same period a year ago.
Banner’s total non-interest expense was $81.6 million in the third quarter of 2018, compared to $82.6 million in the preceding quarter and $80.3 million in the third quarter of 2017. Acquisition-related expenses were $1.0 million for the third quarter, compared to no acquisition expenses in the preceding or year ago quarters. Other non-interest expense items of significance for the third quarter of 2018 included $425,000 in fixed asset write-offs from consolidating six branches in July. Banner’s adjusted efficiency ratio* improved to 60.21% for the current quarter, compared to 64.09% in the prior quarter and 65.62% in the year ago quarter.
For the third quarter of 2018, Banner recorded $8.1 million in state and federal income tax expense for an effective tax rate of 17.6%, reflecting the new lower federal corporate income tax rate beginning in 2018, as well as the benefits from tax exempt income sources and a $1.2 million credit to tax expense for its affordable housing lending activity. Our normal, expected statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates. For the year ago quarter, Banner recorded $10.9 million in state and federal income tax expense for an effective tax rate of 30.3%.
Balance Sheet Review
Banner’s total assets were $10.51 billion at September 30, 2018, compared to $10.38 billion at June 30, 2018, and $10.44 billion at September 30, 2017. The total of securities and interest-bearing deposits held at other banks was $1.76 billion at September 30, 2018, compared to $1.74 billion at June 30, 2018, $1.26 billion at December 31, 2017 and $1.68 billion at September 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 in order to postpone the adverse impact of the Durbin Amendment. The average effective duration of Banner's securities portfolio was approximately 4.2 years at September 30, 2018, compared to 3.6 years at September 30, 2017.
Net loans receivable increased 2% to $7.73 billion at September 30, 2018, compared to $7.59 billion at June 30, 2018 and increased modestly when compared to $7.69 billion at September 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 $3.52 billion at September 30, 2018, compared to $3.51 billion at June 30, 2018, but decreased compared to $3.67 billion a year ago, reflecting significant payoffs of both owner occupied and investment commercial real estate loans. Commercial business loans increased 4% to $1.36 billion at September 30, 2018, compared to $1.31 billion three months earlier and increased 4% compared to $1.31 billion a year ago. Reflecting normal seasonal trends, agricultural business loans increased by 7% to $360.0 million at September 30, 2018, compared to $336.7 million three months earlier and increased by 6% compared to $339.9 million a year ago. Total construction, land and land development loans increased 4% to $1.02 billion at September 30, 2018, compared to $980.4 million at June 30, 2018, and increased 16% compared to $878.4 million a year earlier. Consumer loans increased modestly to $710.5 million at September 30, 2018, compared to $706.8 million at June 30, 2018, and increased compared to $701.2 million a year ago. One- to four-family loans increased modestly to $849.9 million compared to $840.5 million at June 30, 2018, but decreased compared to $869.6 million a year ago.
Loans held for sale decreased 8% to $72.9 million at September 30, 2018, compared to $78.8 million at June 30, 2018, but increased modestly compared to $71.9 million at September 30, 2017. The volume of one- to four- family residential mortgage loans sold remained relatively constant at $134.1 million in the current quarter compared to $124.1 million in the preceding quarter and was $141.0 million in the third quarter a year ago. During the third quarter of 2018, Banner sold $94.0 million in multifamily loans, compared to $135.7 million in the preceding quarter. Loans held for sale at September 30, 2018 included $39.2 million of multifamily loans and $33.6 million of one- to four-family loans.
Total deposits were $8.69 billion at September 30, 2018, compared to $8.53 billion at June 30, 2018, and $8.54 billion a year ago, as strong core deposit growth over the last year, coupled with the addition of brokered certificates of deposits, was partially offset by continuing declines in retail, or non-brokered, certificates of deposit. Compared to a year earlier, total deposits at September 30, 2018 were negatively impacted by the sale of $20.4 million of Poulsbo Branch deposits during the second quarter of 2018, as well as the sale of the Utah branches during the fourth quarter of 2017 which included $160.3 million of deposits. Non-interest-bearing account balances increased 4% to $3.47 billion at September 30, 2018, compared to $3.35 billion at June 30, 2018, and increased 3% compared to $3.38 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 2% from the prior quarter and increased modestly compared to September 30, 2017, despite the sale of the Utah branches. Core deposits represented 86% of total deposits at September 30, 2018, compared to 87% of total deposits at June 30, 2018, and 87% of total deposits a year earlier. Certificates of deposit were $1.18 billion at September 30, 2018, compared to $1.15 billion at June 30, 2018, and $1.10 billion a year earlier. Brokered deposits increased to $325.2 million at September 30, 2018, compared to $280.1 million at June 30, 2018, and were $171.7 million a year earlier.
At September 30, 2018, total common shareholders' equity was $1.27 billion, or $39.26 per share, compared to $1.25 billion at June 30, 2018, and $1.33 billion a year ago. At September 30, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.01 billion, or 9.86% of tangible assets*, compared to $990.5 million, or 9.79% of tangible assets, at June 30, 2018 and $1.06 billion, or 10.39% of tangible assets, a year ago. Banner's tangible book value per share* was $31.20 at September 30, 2018, compared to $31.79 per share a year ago.



BANR - Third Quarter 2018 Results
October 24, 2018
Page 4

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 or third quarters 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 September 30, 2018, Banner Corporation's common equity Tier 1 capital ratio was 11.13%, its Tier 1 leverage capital to average assets ratio was 11.04%, and its total capital to risk-weighted assets ratio was 13.76%.
Credit Quality
The allowance for loan losses was $95.3 million at September 30, 2018, or 1.22% of total loans outstanding and 603% of non-performing loans compared to $93.9 million at June 30, 2018, or 1.22% of total loans outstanding and 613% of non-performing loans, and $89.1 million at September 30, 2017, or 1.15% of total loans outstanding and 296% of non-performing loans. Net loan charge-offs totaled $612,000 in the third quarter compared to $332,000 in the preceding quarter and $1.5 million in the third 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 were $15.8 million at September 30, 2018, compared to $15.3 million at June 30, 2018 and decreased compared to $30.1 million a year ago. Real estate owned and other repossessed assets were $937,000 at September 30, 2018, compared to $1.2 million at June 30, 2018 and $1.6 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. At September 30, 2018, the total purchase discount for acquired loans was $15.4 million.
Banner's non-performing assets were $16.7 million, or 0.16% of total assets, at September 30, 2018, compared to $16.5 million, or 0.16% of total assets, at June 30, 2018 and $31.7 million, or 0.30% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $12.9 million at September 30, 2018, compared to $18.1 million at June 30, 2018 and $23.2 million at September 30, 2017.
Conference Call
Banner will host a conference call on Thursday, October 25, 2018, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10124315, or at www.bannerbank.com.
About the Company
Banner Corporation is a $10.51 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 "may," “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” "potential," or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner's operating and stock price performance.
Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the proposed merger of Banner and Skagit might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the remaining closing conditions to the merger may be delayed or may not be obtained, or the merger agreement may be terminated; (3) business disruption may occur following or in connection with the proposed merger of Banner and Skagit; (4) Banner's or Skagit's businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; (5) the possibility that the proposed merger is more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of managements' attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise; (6) 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; (7) 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; (8) competitive pressures among depository institutions; (9) interest rate movements and their impact on customer behavior and net interest margin; (10) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (11) fluctuations in real estate values; (12) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (13) the ability to access cost-effective funding; (14) changes in financial markets; (15) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (16) the costs, effects and outcomes of litigation; (17) 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-



BANR - Third Quarter 2018 Results
October 24, 2018
Page 5

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; (18) changes in accounting principles, policies or guidelines; (19) future acquisitions by Banner of other depository institutions or lines of business; (20) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (21) 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 - Third Quarter 2018 Results
October 24, 2018
Page 6

RESULTS OF OPERATIONS
 
Quarters Ended
 
Nine months ended
(in thousands except shares and per share data)
 
Sep 30, 2018
 
Jun 30, 2018
 
Sep 30, 2017
 
Sep 30, 2018
 
Sep 30, 2017
 
 
 
 
 
 
 
 
 
 
 
INTEREST INCOME:
 
 
 
 
 
 
 
 
 
 
Loans receivable
 
$
104,868

 
$
99,853

 
$
95,221

 
$
298,743

 
$
281,304

Mortgage-backed securities
 
8,915

 
8,899

 
6,644

 
25,145

 
17,529

Securities and cash equivalents
 
3,865

 
3,671

 
3,413

 
11,003

 
9,976

 
 
117,648

 
112,423

 
105,278

 
334,891

 
308,809

INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Deposits
 
5,517

 
4,264

 
3,189

 
13,139

 
9,162

Federal Home Loan Bank advances
 
1,388

 
1,499

 
569

 
3,564

 
1,142

Other borrowings
 
60

 
49

 
84

 
179

 
241

Junior subordinated debentures
 
1,605

 
1,548

 
1,226

 
4,495

 
3,494

 
 
8,570

 
7,360

 
5,068

 
21,377

 
14,039

Net interest income before provision for loan losses
 
109,078

 
105,063

 
100,210

 
313,514

 
294,770

PROVISION FOR LOAN LOSSES
 
2,000

 
2,000

 
2,000

 
6,000

 
6,000

Net interest income
 
107,078

 
103,063

 
98,210

 
307,514

 
288,770

NON-INTEREST INCOME:
 
 

 
 
 
 

 
 

 
 

Deposit fees and other service charges
 
12,255

 
11,985

 
11,058

 
35,535

 
32,611

Mortgage banking operations
 
5,816

 
4,643

 
4,498

 
15,324

 
15,854

Bank owned life insurance
 
1,726

 
933

 
1,043

 
3,511

 
3,599

Miscellaneous
 
569

 
3,388

 
1,705

 
4,995

 
7,062

 
 
20,366

 
20,949

 
18,304

 
59,365

 
59,126

Net gain on sale of securities
 

 
44

 
270

 
48

 
230

Net change in valuation of financial instruments carried at fair value
 
45

 
224

 
(493
)
 
3,577

 
(1,831
)
Total non-interest income
 
20,411

 
21,217

 
18,081

 
62,990

 
57,525

NON-INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Salary and employee benefits
 
48,930

 
51,494

 
48,931

 
150,491

 
144,014

Less capitalized loan origination costs
 
(4,318
)
 
(4,733
)
 
(4,331
)
 
(13,062
)
 
(13,245
)
Occupancy and equipment
 
12,385

 
11,574

 
11,737

 
35,725

 
35,778

Information / computer data services
 
4,766

 
4,564

 
4,420

 
13,711

 
12,513

Payment and card processing services
 
3,748

 
3,731

 
3,581

 
11,179

 
10,523

Professional services
 
3,010

 
3,838

 
3,349

 
11,276

 
12,233

Advertising and marketing
 
1,786

 
2,141

 
2,130

 
5,758

 
5,225

Deposit insurance
 
991

 
1,021

 
1,101

 
3,353

 
3,438

State/municipal business and use taxes
 
902

 
816

 
780

 
2,430

 
1,857

Real estate operations
 
433

 
(319
)
 
240

 
553

 
(1,089
)
Amortization of core deposit intangibles
 
1,348

 
1,382

 
1,542

 
4,112

 
4,790

Miscellaneous
 
6,646

 
7,128

 
6,851

 
19,444

 
20,432

 
 
80,627

 
82,637

 
80,331

 
244,970

 
236,469

Acquisition related expenses
 
1,005

 

 

 
1,005

 

Total non-interest expense
 
81,632

 
82,637

 
80,331

 
245,975

 
236,469

Income before provision for income taxes
 
45,857

 
41,643

 
35,960

 
124,529

 
109,826

PROVISION FOR INCOME TAXES
 
8,084

 
9,219

 
10,883

 
25,542

 
35,502

NET INCOME
 
$
37,773

 
$
32,424

 
$
25,077

 
$
98,987

 
$
74,324

Earnings per share available to common shareholders:
 
 

 
 
 
 

 
 

 
 

Basic
 
$
1.17

 
$
1.01

 
$
0.76

 
$
3.06

 
$
2.25

Diluted
 
$
1.17

 
$
1.00

 
$
0.76

 
$
3.05

 
$
2.25

Cumulative dividends declared per common share
 
$
0.38

 
$
0.85

 
$
0.25

 
$
1.58

 
$
1.75

Weighted average common shares outstanding:
 
 
 
 

 
 

 
 

 
 

Basic
 
32,256,789

 
32,250,514

 
32,982,532

 
32,300,688

 
32,966,214

Diluted
 
32,376,623

 
32,331,609

 
33,079,099

 
32,406,414

 
33,061,172

(Decrease) increase in common shares outstanding
 
(2,939
)
 
(17,977
)
 
(23,247
)
 
(323,728
)
 
61,397




BANR - Third Quarter 2018 Results
October 24, 2018
Page 7

FINANCIAL  CONDITION
 
 
 
 
 
 
 
 
 
Percentage Change
(in thousands except shares and per share data)
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
184,417

 
$
195,652

 
$
199,624

 
$
192,278

 
(5.7
)%
 
(4.1
)%
Interest-bearing deposits
 
64,244

 
53,773

 
61,576

 
49,488

 
19.5
 %
 
29.8
 %
Total cash and cash equivalents
 
248,661

 
249,425

 
261,200

 
241,766

 
(0.3
)%
 
2.9
 %
Securities - trading
 
25,764

 
25,640

 
22,318

 
23,466

 
0.5
 %
 
9.8
 %
Securities - available for sale
 
1,412,273

 
1,400,312

 
919,485

 
1,339,057

 
0.9
 %
 
5.5
 %
Securities - held to maturity
 
258,699

 
263,176

 
260,271

 
264,752

 
(1.7
)%
 
(2.3
)%
Total securities
 
1,696,736

 
1,689,128

 
1,202,074

 
1,627,275

 
0.5
 %
 
4.3
 %
Federal Home Loan Bank stock
 
19,196

 
19,916

 
10,334

 
20,854

 
(3.6
)%
 
(8.0
)%
Loans held for sale
 
72,850

 
78,833

 
40,725

 
71,905

 
(7.6
)%
 
1.3
 %
Loans receivable
 
7,822,519

 
7,684,732

 
7,598,884

 
7,774,449

 
1.8
 %
 
0.6
 %
Allowance for loan losses
 
(95,263
)
 
(93,875
)
 
(89,028
)
 
(89,100
)
 
1.5
 %
 
6.9
 %
Net loans receivable
 
7,727,256

 
7,590,857

 
7,509,856

 
7,685,349

 
1.8
 %
 
0.5
 %
Accrued interest receivable
 
37,676

 
34,004

 
31,259

 
33,837

 
10.8
 %
 
11.3
 %
Real estate owned held for sale, net
 
364

 
473

 
360

 
1,496

 
(23.0
)%
 
(75.7
)%
Property and equipment, net
 
151,212

 
153,224

 
154,815

 
159,893

 
(1.3
)%
 
(5.4
)%
Goodwill
 
242,659

 
242,659

 
242,659

 
244,583

 
 %
 
(0.8
)%
Other intangibles, net
 
18,499

 
19,858

 
22,655

 
25,219

 
(6.8
)%
 
(26.6
)%
Bank-owned life insurance
 
163,265

 
164,225

 
162,668

 
161,648

 
(0.6
)%
 
1.0
 %
Other assets
 
135,929

 
136,592

 
124,604

 
169,261

 
(0.5
)%
 
(19.7
)%
Total assets
 
$
10,514,303

 
$
10,379,194

 
$
9,763,209

 
$
10,443,086

 
1.3
 %
 
0.7
 %
LIABILITIES
 
 
 
 

 
 

 
 

 
 
 
 
Deposits:
 
 
 
 

 
 

 
 

 
 
 
 
Non-interest-bearing
 
$
3,469,294

 
$
3,346,777

 
$
3,265,544

 
$
3,379,841

 
3.7
 %
 
2.6
 %
Interest-bearing transaction and savings accounts
 
4,035,856

 
4,032,283

 
3,950,950

 
4,058,435

 
0.1
 %
 
(0.6
)%
Interest-bearing certificates
 
1,180,674

 
1,148,607

 
966,937

 
1,100,574

 
2.8
 %
 
7.3
 %
Total deposits
 
8,685,824

 
8,527,667

 
8,183,431

 
8,538,850

 
1.9
 %
 
1.7
 %
Advances from Federal Home Loan Bank at fair value
 
221,184

 
239,190

 
202

 
263,349

 
(7.5
)%
 
(16.0
)%
Customer repurchase agreements and other borrowings
 
98,979

 
112,458

 
95,860

 
103,713

 
(12.0
)%
 
(4.6
)%
Junior subordinated debentures at fair value
 
113,110

 
112,774

 
98,707

 
97,280

 
0.3
 %
 
16.3
 %
Accrued expenses and other liabilities
 
82,530

 
93,281

 
71,344

 
72,604

 
(11.5
)%
 
13.7
 %
Deferred compensation
 
40,478

 
40,814

 
41,039

 
40,279

 
(0.8
)%
 
0.5
 %
Total liabilities
 
9,242,105

 
9,126,184

 
8,490,583

 
9,116,075

 
1.3
 %
 
1.4
 %
SHAREHOLDERS' EQUITY
 
 
 
 

 
 

 
 

 
 
 


Common stock
 
1,175,250

 
1,173,656

 
1,187,127

 
1,215,482

 
0.1
 %
 
(3.3
)%
Retained earnings
 
109,942

 
84,485

 
90,535

 
111,405

 
30.1
 %
 
(1.3
)%
Other components of shareholders' equity
 
(12,994
)
 
(5,131
)
 
(5,036
)
 
124

 
nm

 
nm

Total shareholders' equity
 
1,272,198

 
1,253,010

 
1,272,626

 
1,327,011

 
1.5
 %
 
(4.1
)%
Total liabilities and shareholders' equity
 
$
10,514,303

 
$
10,379,194

 
$
9,763,209

 
$
10,443,086

 
1.3
 %
 
0.7
 %
Common Shares Issued:
 
 
 
 

 
 

 
 

 
 
 
 
Shares outstanding at end of period
 
32,402,757

 
32,405,696

 
32,726,485

 
33,254,784

 
 
 
 
Common shareholders' equity per share (1)
 
$
39.26

 
$
38.67

 
$
38.89

 
$
39.90

 
 
 
 
Common shareholders' tangible equity per share (1) (2)
 
$
31.20

 
$
30.57

 
$
30.78

 
$
31.79

 
 
 
 
Common shareholders' tangible equity to tangible assets (2)
 
9.86
%
 
9.79
%
 
10.61
%
 
10.39
%
 
 
 
 
Consolidated Tier 1 leverage capital ratio
 
11.04
%
 
10.80
%
 
11.33
%
 
11.49
%
 
 
 
 
(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 - Third Quarter 2018 Results
October 24, 2018
Page 8

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
LOANS
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
$
1,271,363

 
$
1,256,730

 
$
1,284,363

 
$
1,369,130

 
1.2
 %
 
(7.1
)%
Investment properties
 
1,943,793

 
1,920,790

 
1,937,423

 
1,993,144

 
1.2
 %
 
(2.5
)%
Multifamily real estate
 
309,809

 
330,384

 
314,188

 
311,706

 
(6.2
)%
 
(0.6
)%
Commercial construction
 
154,071

 
166,089

 
148,435

 
157,041

 
(7.2
)%
 
(1.9
)%
Multifamily construction
 
172,433

 
147,576

 
154,662

 
136,532

 
16.8
 %
 
26.3
 %
One- to four-family construction
 
498,549

 
480,591

 
415,327

 
399,361

 
3.7
 %
 
24.8
 %
Land and land development:
 
 
 
 
 
 

 
 

 
 
 
 
Residential
 
171,610

 
163,335

 
164,516

 
158,384

 
5.1
 %
 
8.4
 %
Commercial
 
22,382

 
22,849

 
24,583

 
27,095

 
(2.0
)%
 
(17.4
)%
Commercial business
 
1,358,149

 
1,312,424

 
1,279,894

 
1,311,409

 
3.5
 %
 
3.6
 %
Agricultural business including secured by farmland
 
359,966

 
336,709

 
338,388

 
339,932

 
6.9
 %
 
5.9
 %
One- to four-family real estate
 
849,928

 
840,470

 
848,289

 
869,556

 
1.1
 %
 
(2.3
)%
Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Consumer secured by one- to four-family real estate
 
539,143

 
536,007

 
522,931

 
535,300

 
0.6
 %
 
0.7
 %
Consumer-other
 
171,323

 
170,778

 
165,885

 
165,859

 
0.3
 %
 
3.3
 %
Total loans receivable
 
$
7,822,519

 
$
7,684,732

 
$
7,598,884

 
$
7,774,449

 
1.8
 %
 
0.6
 %
Restructured loans performing under their restructured terms
 
$
13,328

 
$
13,793

 
$
16,115

 
$
12,744

 
 
 
 
Loans 30 - 89 days past due and on accrual (1)
 
$
8,688

 
$
8,040

 
$
29,278

 
$
9,619

 
 
 
 
Total delinquent loans (including loans on non-accrual), net (2)
 
$
21,191

 
$
22,620

 
$
50,503

 
$
34,792

 
 
 
 
Total delinquent loans  /  Total loans receivable
 
0.27
%
 
0.29
%
 
0.66
%
 
0.45
%
 
 
 
 

(1) Includes $5,000 of purchased credit-impaired loans at September 30, 2018 compared to $6,000 at June 30, 2018, $943,000 at December 31, 2017, and $1.0 million at September 30, 2017.
(2) Delinquent loans include $568,000 of delinquent purchased credit-impaired loans at September 30, 2018 compared to $1.0 million at June 30, 2018, $2.2 million at December 31, 2017, and $2.9 million at September 30, 2017.

LOANS BY GEOGRAPHIC LOCATION
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington
 
$
3,640,209

 
46.5%
 
$
3,550,945

 
$
3,508,542

 
$
3,515,881

 
2.5
 %
 
3.5
 %
Oregon
 
1,628,703

 
20.9%
 
1,601,939

 
1,590,233

 
1,561,723

 
1.7
 %
 
4.3
 %
California
 
1,496,817

 
19.1%
 
1,477,293

 
1,415,076

 
1,381,572

 
1.3
 %
 
8.3
 %
Idaho
 
504,297

 
6.4%
 
500,201

 
492,603

 
495,041

 
0.8
 %
 
1.9
 %
Utah
 
63,053

 
0.8%
 
76,414

 
73,382

 
304,740

 
(17.5
)%
 
(79.3
)%
Other
 
489,440

 
6.3%
 
477,940

 
519,048

 
515,492

 
2.4
 %
 
(5.1
)%
Total loans receivable
 
$
7,822,519

 
100.0%
 
$
7,684,732

 
$
7,598,884

 
$
7,774,449

 
1.8
 %
 
0.6
 %




BANR - Third Quarter 2018 Results
October 24, 2018
Page 9

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
  Quarters Ended
 
Nine months ended
CHANGE IN THE
 
Sep 30, 2018
 
Jun 30, 2018
 
Sep 30, 2017
 
Sep 30, 2018
 
Sep 30, 2017
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
93,875

 
$
92,207

 
$
88,586

 
$
89,028

 
$
85,997

Provision for loan losses
 
2,000

 
2,000

 
2,000

 
6,000

 
6,000

Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
12

 
216

 
19

 
1,580

 
353

Multifamily real estate
 

 

 

 

 
11

Construction and land
 
5

 
11

 
73

 
190

 
1,180

One- to four-family real estate
 
86

 
356

 
8

 
732

 
262

Commercial business
 
586

 
100

 
577

 
856

 
921

Agricultural business, including secured by farmland
 

 
41

 
1

 
41

 
133

Consumer
 
46

 
106

 
98

 
264

 
293

 
 
735

 
830

 
776

 
3,663

 
3,153

Loans charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
(102
)
 
(299
)
 
(584
)
 
(401
)
 
(631
)
Construction and land
 
(479
)
 

 

 
(479
)
 

One- to four-family real estate
 
(27
)
 

 

 
(43
)
 

Commercial business
 
(473
)
 
(375
)
 
(491
)
 
(1,367
)
 
(3,286
)
Agricultural business, including secured by farmland
 
(5
)
 
(329
)
 
(1,001
)
 
(341
)
 
(1,264
)
Consumer
 
(261
)
 
(159
)
 
(186
)
 
(797
)
 
(869
)
 
 
(1,347
)
 
(1,162
)
 
(2,262
)
 
(3,428
)
 
(6,050
)
Net (charge-offs) recoveries
 
(612
)
 
(332
)
 
(1,486
)
 
235

 
(2,897
)
Balance, end of period
 
$
95,263

 
$
93,875

 
$
89,100

 
$
95,263

 
$
89,100

Net (charge-offs) recoveries / Average loans receivable
 
(0.008
)%
 
(0.004
)%
 
(0.019
)%
 
0.003
%
 
(0.038
)%


ALLOCATION OF
 
 
 
 
 
 
 
 
ALLOWANCE FOR LOAN LOSSES
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
Specific or allocated loss allowance:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
25,147

 
$
24,413

 
$
22,824

 
$
23,431

Multifamily real estate
 
3,745

 
3,718

 
1,633

 
1,625

Construction and land
 
24,564

 
27,034

 
27,568

 
29,422

One- to four-family real estate
 
4,423

 
3,932

 
2,055

 
2,040

Commercial business
 
17,948

 
19,141

 
18,311

 
18,657

Agricultural business, including secured by farmland
 
3,505

 
3,162

 
4,053

 
3,949

Consumer
 
8,110

 
5,725

 
3,866

 
4,016

Total allocated
 
87,442

 
87,125

 
80,310

 
83,140

Unallocated
 
7,821

 
6,750

 
8,718

 
5,960

Total allowance for loan losses
 
$
95,263

 
$
93,875

 
$
89,028

 
$
89,100

Allowance for loan losses / Total loans receivable
 
1.22
%
 
1.22
%
 
1.17
%
 
1.15
%
Allowance for loan losses / Non-performing loans
 
603
%
 
613
%
 
329
%
 
296
%






BANR - Third Quarter 2018 Results
October 24, 2018
Page 10


ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
NON-PERFORMING ASSETS
 
 
 
 
 
 
 
Loans on non-accrual status:
 
 
 
 
 
 
 
Secured by real estate:
 
 
 
 
 
 
 
Commercial
$
3,728

 
$
4,341

 
$
10,646

 
$
11,632

Construction and land
2,095

 
1,176

 
798

 
1,726

One- to four-family
1,827

 
2,281

 
3,264

 
2,878

Commercial business
2,921

 
2,673

 
3,406

 
7,144

Agricultural business, including secured by farmland
1,645

 
1,712

 
6,132

 
4,285

Consumer
1,703

 
1,176

 
1,297

 
1,462

 
13,919

 
13,359

 
25,543

 
29,127

Loans more than 90 days delinquent, still on accrual:
 
 
 

 
 

 
 

Secured by real estate:
 
 
 

 
 

 
 

Commercial
428

 

 

 
53

Construction and land

 
784

 
298

 

One- to four-family
1,076

 
905

 
1,085

 
722

Commercial business
87

 
1

 
18

 
51

Consumer
296

 
253

 
85

 
101

 
1,887

 
1,943

 
1,486

 
927

Total non-performing loans
15,806

 
15,302

 
27,029

 
30,054

Real estate owned (REO)
364

 
473

 
360

 
1,496

Other repossessed assets
573

 
733

 
107

 
145

Total non-performing assets
$
16,743

 
$
16,508

 
$
27,496

 
$
31,695

Total non-performing assets to total assets
0.16
%
 
0.16
%
 
0.28
%
 
0.30
%
Purchased credit-impaired loans, net
$
12,944

 
$
18,063

 
$
21,310

 
$
23,221


 
Quarters Ended
 
Nine months ended
REAL ESTATE OWNED
Sep 30, 2018
 
Jun 30, 2018
 
Sep 30, 2017
 
Sep 30, 2018
 
Sep 30, 2017
Balance, beginning of period
$
473

 
$
328

 
$
2,427

 
$
360

 
$
11,081

Additions from loan foreclosures

 
393

 

 
502

 
46

Additions from capitalized costs

 

 

 

 
54

Proceeds from dispositions of REO
(90
)
 
(314
)
 
(961
)
 
(385
)
 
(11,382
)
Gain on sale of REO
8

 
66

 
30

 
74

 
1,953

Valuation adjustments in the period
(27
)
 

 

 
(187
)
 
(256
)
Balance, end of period
$
364

 
$
473

 
$
1,496

 
$
364

 
$
1,496





BANR - Third Quarter 2018 Results
October 24, 2018
Page 11




ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEPOSIT COMPOSITION
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
 
$
3,469,294

 
$
3,346,777

 
$
3,265,544

 
$
3,379,841

 
3.7
 %
 
2.6
 %
Interest-bearing checking
 
1,034,678

 
1,012,519

 
971,137

 
955,486

 
2.2
 %
 
8.3
 %
Regular savings accounts
 
1,627,560

 
1,635,080

 
1,557,500

 
1,577,292

 
(0.5
)%
 
3.2
 %
Money market accounts
 
1,373,618

 
1,384,684

 
1,422,313

 
1,525,657

 
(0.8
)%
 
(10.0
)%
Total interest-bearing transaction and savings accounts
 
4,035,856

 
4,032,283

 
3,950,950

 
4,058,435

 
0.1
 %
 
(0.6
)%
Total core deposits
 
7,505,150

 
7,379,060

 
7,216,494

 
7,438,276

 
1.7
 %
 
0.9
 %
Interest-bearing certificates
 
1,180,674

 
1,148,607

 
966,937

 
1,100,574

 
2.8
 %
 
7.3
 %
Total deposits
 
$
8,685,824

 
$
8,527,667

 
$
8,183,431

 
$
8,538,850

 
1.9
 %
 
1.7
 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
Amount
 
 
 
 
Washington
 
$
4,849,807

 
55.8%
 
$
4,735,357

 
$
4,506,249

 
$
4,654,406

 
2.4
 %
 
4.2
 %
Oregon
 
1,916,183

 
22.1%
 
1,886,435

 
1,797,147

 
1,811,459

 
1.6
 %
 
5.8
 %
California
 
1,462,417

 
16.8%
 
1,444,413

 
1,432,819

 
1,442,727

 
1.2
 %
 
1.4
 %
Idaho
 
457,417

 
5.3%
 
461,462

 
447,216

 
465,104

 
(0.9
)%
 
(1.7
)%
Utah
 

 
—%
 

 

 
165,154

 
nm
 
nm
Total deposits
 
$
8,685,824

 
100.0%
 
$
8,527,667

 
$
8,183,431

 
$
8,538,850

 
1.9
 %
 
1.7
 %


INCLUDED IN TOTAL DEPOSITS
 
Sep 30, 2018
 
Jun 30, 2018
 
Dec 31, 2017
 
Sep 30, 2017
Public non-interest-bearing accounts
 
$
76,957

 
$
86,040

 
$
86,987

 
$
86,262

Public interest-bearing transaction & savings accounts
 
110,802

 
114,457

 
111,732

 
108,257

Public interest-bearing certificates
 
25,367

 
24,390

 
23,685

 
26,543

Total public deposits
 
$
213,126

 
$
224,887

 
$
222,404

 
$
221,062

Total brokered deposits
 
$
325,154

 
$
280,055

 
$
57,228

 
$
171,718




 
 
 
 
 
 
 




BANR - Third Quarter 2018 Results
October 24, 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 SEPTEMBER 30, 2018
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Banner Corporation-consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
      Total capital to risk-weighted assets
 
$
1,223,107

 
13.76
%
 
$
711,305

 
8.00
%
 
$
889,131

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,125,395

 
12.66
%
 
533,479

 
6.00
%
 
533,479

 
6.00
%
      Tier 1 leverage capital to average assets
 
1,125,395

 
11.04
%
 
407,660

 
4.00
%
 
n/a

 
n/a

      Common equity tier 1 capital to risk-weighted assets
 
989,395

 
11.13
%
 
400,109

 
4.50
%
 
n/a

 
n/a

Banner Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
1,133,724

 
13.03
%
 
696,147

 
8.00
%
 
870,184

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,038,456

 
11.93
%
 
522,110

 
6.00
%
 
696,147

 
8.00
%
      Tier 1 leverage capital to average assets
 
1,038,453

 
10.49
%
 
395,837

 
4.00
%
 
494,796

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
1,038,456

 
11.93
%
 
391,583

 
4.50
%
 
565,619

 
6.50
%
Islanders Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
33,866

 
17.98
%
 
15,066

 
8.00
%
 
18,833

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
31,511

 
16.73
%
 
11,300

 
6.00
%
 
15,066

 
8.00
%
      Tier 1 leverage capital to average assets
 
31,511

 
10.69
%
 
11,796

 
4.00
%
 
14,745

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
31,511

 
16.73
%
 
8,475

 
4.50
%
 
12,241

 
6.50
%






BANR - Third Quarter 2018 Results
October 24, 2018
Page 13

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
September 30, 2018
 
June 30, 2018
 
September 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: