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Section 1: 8-K (8-K)

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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): January 23, 2019
 
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 January 23, 2019, Banner Corporation issued its earnings release for the quarter ended December 31, 2018. A copy of the earnings release is furnished herewith as Exhibit 99.1, which is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(d)    Exhibits

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

99.1 Press Release of Banner Corporation dated January 23 2019.






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: January 23, 2019
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

396466746_irgrouplogo.jpg
396466746_bannebankcorplogoline.jpg
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
PETER J. CONNER, CFO
 
(509) 527-3636
 
NEWS RELEASE
 
 
 
 
 
 
 
 
 
 
 
 

Banner Corporation Reports Fourth Quarter Results and Record Full Year Net Income. Fourth Quarter Net Income of $37.5 Million, or $1.09 Per Diluted Share; Results Highlighted by Strong Organic Loan Growth and Completion of Skagit Bancorp, Inc. Acquisition

Walla Walla, WA - January 23, 2019 - Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported strong organic loan growth exclusive of the Skagit Bancorp, Inc. ("Skagit") acquisition on November 1, 2018, combined with a stable net interest margin, contributed to solid fourth quarter financial results. Net income in the fourth quarter of 2018 was $37.5 million, or $1.09 per diluted share, compared to $37.8 million, or $1.17 per diluted share, in the preceding quarter. Fourth quarter results include $4.6 million of acquisition-related expense, compared to $1.0 million of acquisition-related expense in the preceding quarter. In the fourth quarter of 2017, following a revaluation of deferred tax assets due to tax reforms enacted in 2017, Banner recorded additional tax expense of $42.6 million, or $1.30 per diluted share. Consequently, the fourth quarter 2017 net loss was $13.5 million, or $0.41 per diluted share. There was no acquisition-related expense in the fourth quarter of 2017. For the year ended December 31, 2018, net income increased to $136.5 million, or $4.15 per diluted share, compared to $60.8 million, or $1.84 per diluted share, in 2017.
“Banner’s fourth quarter and full year 2018 performance reflects continued execution of our super community bank strategy, which is generating new client relationships, adding to our core funding position by growing core deposits, and promoting client loyalty through our responsive service model, while augmenting our growth with opportunistic acquisitions,” stated Mark J. Grescovich, President and Chief Executive Officer. “During the fourth quarter, we announced the completion of the merger with Skagit. This transaction expanded Banner’s presence and density in the attractive North Sound region in Northwest Washington State and represents a complementary fit, both strategically and culturally, with Banner’s business model. The combination of our two organizations provides the opportunity to enhance operational efficiency 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 December 31, 2018, Banner Corporation had $11.86 billion in assets, $8.59 billion in net loans and $9.48 billion in deposits. Banner operates 182 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
Fourth Quarter 2018 Highlights
Revenues were $138.5 million during the quarter ended December 31, 2018, $129.5 million during the preceding quarter and $125.9 million during the fourth quarter a year ago.
Net interest income, before the provision for loan losses, increased 8% to $117.5 million, compared to $109.1 million in the preceding quarter and increased 20% from $98.3 million in the fourth quarter a year ago.
Net interest margin was 4.47% for the current quarter, compared to 4.48% in the preceding quarter and 4.18% in the fourth quarter a year ago.
Loans receivable increased $862.1 million, or 11%, to $8.68 billion at December 31, 2018, including $631.7 million of portfolio loans from the acquisition of Skagit, compared to $7.82 billion at September 30, 2018.
Provision for loan losses increased to $2.5 million from $2.0 million in the preceding quarter, increasing the allowance for loan losses to $96.5 million, or 1.11% of total loans, compared to an allowance for loan losses of $89.0 million, or 1.17% of total loans, as of December 31, 2017.
Core deposits increased $651.6 million, or 9%, to $8.16 billion, including $696.3 million of core deposits acquired from the Skagit acquisition, compared to September 30, 2018 and represented 86% of total deposits at December 31, 2018.
Quarterly dividends to shareholders for the current quarter were $0.38 per share, an increase of 52% from the quarterly dividend for the fourth quarter a year ago.
Common shareholders’ equity per share increased to $41.79 at December 31, 2018, compared to $39.26 at the preceding quarter end and $38.89 a year ago.  
Tangible common shareholders' equity per share* increased to $31.45 at December 31, 2018, compared to $31.20 at the preceding quarter end and $30.78 a year ago.
Non-performing assets improved to $18.9 million, or 0.16% of total assets, at December 31, 2018, compared to $27.5 million, or 0.28% of total assets, at December 31, 2017.

*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, net loss on the sale of securities and in the fourth quarter of 2017 gain on the sale of branches) and the adjusted efficiency ratio (which excludes fair value adjustments, net loss on the sale of securities and, in the fourth quarter of 2017, gain on the sale of branches from the total of net interest income before provision for loan losses and non-



BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 2

interest income and excludes acquisition-related costs, 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.
Recent Events
On November 1, 2018, Banner completed its acquisition of Skagit and its wholly-owned subsidiary, Skagit Bank, of Burlington, Washington. As of the closing of the transaction, Skagit Bank had 11 retail branches along the I-5 corridor from Seattle to the Canadian border. Pursuant to the previously announced terms of the acquisition, Skagit shareholders received 5.6664 shares of Banner common stock in exchange for each share of Skagit common stock, plus cash in lieu of any fractional shares and cash to buyout Skagit stock options for a total consideration paid of $171.8 million.
The Skagit merger was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of Skagit were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date. The acquisition provided $915.8 million of assets, $632.4 million of loans, and $810.2 million of deposits to Banner.

Income Statement Review
“Our net interest margin remained strong despite an increase in deposit costs,” said Grescovich. Banner's net interest margin was 4.47% for the fourth quarter of 2018, a one basis-point decrease compared to 4.48% in the preceding quarter and a 29 basis-point improvement compared to 4.18% in the fourth quarter a year ago. Acquisition accounting adjustments added 12 basis points to the net interest margin in both the current quarter and preceding quarters compared to six basis points in the fourth quarter a year ago. The total purchase discount for acquired loans was $25.7 million at December 31, 2018, an increase from $15.4 million at September 30, 2018 and $21.1 million at December 31, 2017. For the year ended December 31, 2018, Banner’s net interest margin expanded 19 basis points to 4.43% compared to 4.24% in 2017. Acquisition accounting adjustments added ten basis points to the net interest margin for both years.
Average interest-earning asset yields increased seven basis points to 4.90% compared to 4.83% for the preceding quarter and increased 50 basis points compared to 4.40% in the fourth quarter a year ago. Average loan yields increased six basis points to 5.37% compared to 5.31% in the preceding quarter and increased 55 basis points compared to 4.82% in the fourth quarter a year ago. Loan discount accretion added 16 basis points to loan yields in the fourth quarter of 2018, compared to 15 basis points in the preceding quarter and five basis points in the fourth quarter a year ago. Deposit costs were 0.32% in the fourth quarter of 2018, a seven basis-point increase compared to the preceding quarter and a 17 basis-point increase compared to the fourth quarter a year ago. The total cost of funds was 0.46% during the fourth quarter of 2018, a nine basis-point increase compared to the preceding quarter and a 23 basis-point increase compared to the fourth quarter a year ago, largely reflecting increased use of brokered deposits and the impact of the rising interest 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 $2.5 million provision for loan losses in the current quarter, compared to $2.0 million recorded in both the prior quarter and in the same quarter a year ago.
Deposit fees and other service charges were $12.5 million in the fourth quarter of 2018, compared to $12.3 million in the preceding quarter and $10.8 million in the fourth quarter a year ago. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $6.0 million in the fourth quarter, compared to $5.8 million in the preceding quarter and $5.0 million in the fourth quarter of 2017. Home purchase activity accounted for 78% of one- to four-family mortgage loan originations in the fourth quarter of 2018, compared to 78% in the prior quarter and 71% in the fourth quarter of 2017.
Banner’s fourth quarter 2018 results included a $198,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and an $885,000 net loss on the sale of securities. In the preceding quarter, results included a $45,000 net gain for fair value adjustments. In the fourth quarter a year ago, results included a $1.0 million net loss for fair value adjustments and a $2.3 million net loss 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.
Total revenues increased 7% to $138.5 million for the fourth quarter of 2018, compared to $129.5 million in the preceding quarter and increased 10% compared to $125.9 million in the fourth quarter a year ago. For the year, total revenues increased 8% to $515.0 million, compared to $478.2 million in 2017. Revenues from core operations* (revenues excluding gains and losses on the sale of securities, the net change in valuation of financial instruments and, in the fourth quarter of 2017, the gain on sale of the Utah branches) increased to $139.2 million in the fourth quarter of 2018, compared to $129.4 million in the preceding quarter and $117.1 million in the fourth quarter of 2017. For 2018, revenues from core operations* increased 9% to $512.0 million from $471.0 million in 2017.



BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 3

Total non-interest income was $21.0 million in the fourth quarter of 2018, compared to $20.4 million in the third quarter of 2018 and $27.7 million in the fourth quarter a year ago. For 2018, total non-interest income was $84.0 million, compared to $85.2 million in 2017.
Banner’s total non-interest expense was $95.4 million in the fourth quarter of 2018, compared to $81.6 million in the preceding quarter and $82.5 million in the fourth quarter of 2017. Acquisition-related expenses were $4.6 million for the fourth quarter of 2018, compared to $1.0 million for the preceding quarter and no acquisition expenses for the year ago quarter. The increase in non-interest expense during the quarter also reflects the expenses associated with operating the branches acquired in the Skagit acquisition. Other non-interest expense items of significance for the fourth quarter of 2018 included a $4.0 million accrual for pending litigation. Banner’s efficiency ratio was 68.89% for the current quarter, compared to 63.04% in the preceding quarter and 65.51% in the year ago quarter. Banner’s adjusted efficiency ratio*, which is calculated by dividing core non-interest expense by core revenue, was 63.06% for the current quarter, compared to 60.21% in the preceding quarter and 69.40% in the year ago quarter.
For the fourth quarter of 2018, Banner recorded $3.1 million in state and federal income tax expense for an effective tax rate of 7.5%, reflecting the new lower federal corporate income tax rate beginning in 2018, as well as the benefits from tax exempt income sources. In addition, Banner recorded $5.5 million of tax benefit adjustments, which included the release of a $4.2 million valuation reserve previously recorded in the fourth quarter of 2017 as a provisional amount related to the enactment of the Tax Cuts and Jobs Act. 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 $55.0 million in state and federal income tax expense primarily due to a $42.6 million charge for the revaluation of its deferred tax assets as a result of the passage of the Tax Cuts and Jobs Act.
Balance Sheet Review
Largely as a result of the Skagit acquisition, but also as a result of organic growth, Banner’s total assets increased to $11.86 billion at December 31, 2018, compared to $10.51 billion at September 30, 2018 and $9.76 billion at December 31, 2017. The total of securities and interest-bearing deposits held at other banks was $1.94 billion at December 31, 2018, compared to $1.76 billion at September 30, 2018 and $1.26 billion at December 31, 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. During 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 3.5 years at December 31, 2018, compared to 4.1 years at December 31, 2017.
Net loans receivable increased 11% to $8.59 billion at December 31, 2018, compared to $7.73 billion at September 30, 2018 and increased 14% when compared to $7.51 billion at December 31, 2017. The $860.9 million increase in net loans during the current quarter included $631.7 million of portfolio loans acquired in the Skagit acquisition as well as $230.4 million of organic loan growth. Organic loan growth was 12% on an annualized basis during the quarter. Commercial real estate and multifamily real estate loans increased 11% to $3.93 billion at December 31, 2018, compared to $3.52 billion at September 30, 2018, and $3.54 billion a year ago. Commercial business loans increased 9% to $1.48 billion at December 31, 2018, compared to $1.36 billion three months earlier and increased 16% compared to $1.28 billion a year ago. Reflecting normal seasonal trends, agricultural business loans increased by 12% to $404.9 million at December 31, 2018, compared to $360.0 million three months earlier and increased by 20% compared to $338.4 million a year ago. Total construction, land and land development loans increased 9% to $1.11 billion at December 31, 2018, compared to $1.02 billion at September 30, 2018 and increased 22% compared to $907.5 million a year earlier. Consumer loans increased 10% to $785.0 million at December 31, 2018, compared to $710.5 million at September 30, 2018 and increased 14% compared to $688.8 million a year ago. One- to four-family loans increased 15% to $973.6 million, compared to both $849.9 million at September 30, 2018 and $848.3 million a year ago.
Loans held for sale increased substantially to $171.0 million at December 31, 2018, compared to $72.9 million at September 30, 2018 and $40.7 million at December 31, 2017. The volume of one- to four- family residential mortgage loans sold was $130.1 million in the current quarter, compared to $134.1 million in the preceding quarter and was $141.1 million in the fourth quarter a year ago. During the fourth quarter of 2018, Banner sold $26.8 million in multifamily loans, compared to $94.0 million in the preceding quarter. Loans held for sale at December 31, 2018 included $130.7 million of multifamily loans and $40.3 million of one- to four-family loans.
Total deposits increased 9% to $9.48 billion at December 31, 2018, compared to $8.69 billion at September 30, 2018 and increased 16% when compared to $8.18 billion a year ago, as core deposit growth over the last year, coupled with the addition of both deposits from the Skagit acquisition and brokered certificates of deposit, was partially offset by continuing declines in retail, or non-brokered, certificates of deposit. Total deposits at December 31, 2018 were negatively impacted by the sale of $20.4 million of Poulsbo Branch deposits during the second quarter of 2018. Non-interest-bearing account balances increased 5% to $3.66 billion at December 31, 2018, compared to $3.47 billion at September 30, 2018 and increased 12% compared to $3.27 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased $651.6 million, or 9%, from the prior quarter and increased 13% compared to a year ago. The core deposit balance at December 31, 2018 was positively impacted by $696.3 million of core deposits acquired in the Skagit acquisition. Core deposits represented 86% of total deposits at December 31, 2018, the same as three months earlier, and were 88% of total deposits a year earlier. Certificates of deposit increased 12% to $1.32 billion at December 31, 2018, compared to $1.18 billion at September 30, 2018 and increased 37% compared to $966.9 million a year earlier. Brokered deposits increased to $377.3 million at December 31, 2018, compared to $325.2 million at September 30, 2018 and $40.7 million a year earlier.
At December 31, 2018, total common shareholders' equity was $1.47 billion, or 12.39% of assets, compared to $1.27 billion or 12.10% of assets at September 30, 2018 and $1.27 billion or 13.03% of assets a year ago. At December 31, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.11 billion, or 9.62% of tangible assets*, compared to $1.01 billion, or 9.86% of tangible assets, at September 30, 2018 and $1.01 billion, or 10.61% of tangible assets, a year ago. Banner's tangible book value per share* increased to $31.45 at December 31, 2018, compared to $30.78 per share a year ago.
During the first quarter of 2018, Banner repurchased 269,711 shares of its common stock and during the fourth quarter of 2018, Banner repurchased 325,000 shares of its common stock. There were no repurchases of common stock during the second or third quarters of 2018. Banner and its subsidiary



BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 4

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 December 31, 2018, Banner's common equity Tier 1 capital ratio was 10.75%, its Tier 1 leverage capital to average assets ratio was 10.98%, and its total capital to risk-weighted assets ratio was 13.12%.
Credit Quality
The allowance for loan losses was $96.5 million at December 31, 2018, or 1.11% of total loans outstanding and 616% of non-performing loans compared to $95.3 million at September 30, 2018, or 1.22% of total loans outstanding and 603% of non-performing loans, and $89.0 million at December 31, 2017, or 1.17% of total loans outstanding and 329% of non-performing loans. Net loan charge-offs totaled $1.3 million in the fourth quarter, compared to $612,000 in the preceding quarter and $2.1 million in the fourth 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 $2.5 million provision for loan losses in the current quarter, compared to $2.0 million recorded in both the prior quarter and in the year ago quarter. Non-performing loans decreased to $15.7 million at December 31, 2018, compared to $15.8 million at September 30, 2018 and $27.0 million a year ago. Real estate owned and other repossessed assets were $3.2 million at December 31, 2018, compared to $937,000 at September 30, 2018 and $467,000 a year ago. The increase in the current quarter primarily reflects $2.6 million of real estate owned acquired in the Skagit acquisition.
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 December 31, 2018, the total purchase discount for acquired loans was $25.7 million.
Banner's non-performing assets were $18.9 million, or 0.16% of total assets, at December 31, 2018, compared to $16.7 million, or 0.16% of total assets, at September 30, 2018 and $27.5 million, or 0.28% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans increased due to the Skagit acquisition to $14.4 million at December 31, 2018, compared to $12.9 million at September 30, 2018 and decreased when compared to $21.3 million at December 31, 2017.
Conference Call
Banner will host a conference call on Thursday, January 24, 2019, at 8:00 a.m. PST, to discuss its fourth quarter and year end 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 10127071, or at www.bannerbank.com.
About the Company
Banner Corporation is a $11.86 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 Skagit acquisition 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 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; (3) 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; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior and net interest margin; (6) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (12) the costs, effects and outcomes of litigation; (13) 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; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; (16) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (17) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing,



BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 5

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 - Fourth Quarter 2018 Results
January 23, 2019
Page 6

RESULTS OF OPERATIONS
 
Quarters Ended
 
Twelve months ended
(in thousands except shares and per share data)
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Dec 31, 2018
 
Dec 31, 2017
 
 
 
 
 
 
 
 
 
 
 
INTEREST INCOME:
 
 
 
 
 
 
 
 
 
 
Loans receivable
 
$
114,627

 
$
104,868

 
$
93,145

 
$
413,370

 
$
374,449

Mortgage-backed securities
 
9,931

 
8,915

 
7,006

 
35,076

 
24,535

Securities and cash equivalents
 
4,183

 
3,865

 
3,324

 
15,186

 
13,300

 
 
128,741

 
117,648

 
103,475

 
463,632

 
412,284

INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Deposits
 
7,503

 
5,517

 
3,111

 
20,642

 
12,273

Federal Home Loan Bank advances
 
2,072

 
1,388

 
766

 
5,636

 
1,908

Other borrowings
 
66

 
60

 
77

 
245

 
317

Junior subordinated debentures
 
1,641

 
1,605

 
1,257

 
6,136

 
4,752

 
 
11,282

 
8,570

 
5,211

 
32,659

 
19,250

Net interest income before provision for loan losses
 
117,459

 
109,078

 
98,264

 
430,973

 
393,034

PROVISION FOR LOAN LOSSES
 
2,500

 
2,000

 
2,000

 
8,500

 
8,000

Net interest income
 
114,959

 
107,078

 
96,264

 
422,473

 
385,034

NON-INTEREST INCOME:
 
 

 
 
 
 

 
 

 
 

Deposit fees and other service charges
 
12,539

 
12,255

 
10,840

 
48,074

 
43,452

Mortgage banking operations
 
6,019

 
5,816

 
5,025

 
21,343

 
20,880

Bank owned life insurance
 
994

 
1,726

 
1,020

 
4,505

 
4,618

Miscellaneous
 
2,153

 
569

 
1,923

 
7,148

 
8,985

 
 
21,705

 
20,366

 
18,808

 
81,070

 
77,935

Net loss on sale of securities
 
(885
)
 

 
(2,310
)
 
(837
)
 
(2,080
)
Net change in valuation of financial instruments carried at fair value
 
198

 
45

 
(1,013
)
 
3,775

 
(2,844
)
Gain on sale of branches, including related loans and deposits
 

 

 
12,189

 

 
12,189

Total non-interest income
 
21,018

 
20,411

 
27,674

 
84,008

 
85,200

NON-INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Salary and employee benefits
 
52,122

 
48,930

 
48,082

 
202,613

 
192,096

Less capitalized loan origination costs
 
(4,863
)
 
(4,318
)
 
(4,134
)
 
(17,925
)
 
(17,379
)
Occupancy and equipment
 
13,490

 
12,385

 
12,088

 
49,215

 
47,866

Information / computer data services
 
5,112

 
4,766

 
4,731

 
18,823

 
17,245

Payment and card processing services
 
4,233

 
3,748

 
3,807

 
15,412

 
14,330

Professional and legal expenses
 
6,669

 
3,010

 
5,301

 
17,945

 
17,534

Advertising and marketing
 
2,588

 
1,786

 
3,412

 
8,346

 
8,637

Deposit insurance
 
1,093

 
991

 
1,251

 
4,446

 
4,689

State/municipal business and use taxes
 
854

 
902

 
737

 
3,284

 
2,594

Real estate operations
 
251

 
433

 
(941
)
 
804

 
(2,030
)
Amortization of core deposit intangibles
 
1,935

 
1,348

 
1,457

 
6,047

 
6,246

Miscellaneous
 
7,310

 
6,646

 
6,710

 
26,754

 
27,142

 
 
90,794

 
80,627

 
82,501

 
335,764

 
318,970

Acquisition related expenses
 
4,602

 
1,005

 

 
5,607

 

Total non-interest expense
 
95,396

 
81,632

 
82,501

 
341,371

 
318,970

Income before provision for income taxes
 
40,581

 
45,857

 
41,437

 
165,110

 
151,264

PROVISION FOR INCOME TAXES
 
3,053

 
8,084

 
54,985

 
28,595

 
90,488

NET INCOME
 
$
37,528

 
$
37,773

 
$
(13,548
)
 
$
136,515

 
$
60,776

Earnings (loss) per share available to common shareholders:
 
 

 
 
 
 

 
 

 
 

Basic
 
$
1.10

 
$
1.17

 
$
(0.41
)
 
$
4.16

 
$
1.85

Diluted
 
$
1.09

 
$
1.17

 
$
(0.41
)
 
$
4.15

 
$
1.84

Cumulative dividends declared per common share
 
$
0.38

 
$
0.38

 
$
0.25

 
$
1.96

 
$
2.00

Weighted average common shares outstanding:
 
 
 
 

 
 

 
 

 
 

Basic
 
34,221,048

 
32,256,789

 
32,655,973

 
32,784,724

 
32,888,007

Diluted
 
34,342,641

 
32,376,623

 
32,766,335

 
32,894,425

 
32,986,707

Increase (decrease) in common shares outstanding
 
2,780,015

 
(2,939
)
 
(528,299
)
 
2,456,287

 
(466,902
)



BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 7

FINANCIAL  CONDITION
 
 
 
 
 
 
 
Percentage Change
(in thousands except shares and per share data)
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
231,029

 
$
184,417

 
$
199,624

 
25.3
 %
 
15.7
 %
Interest-bearing deposits
 
41,167

 
64,244

 
61,576

 
(35.9
)%
 
(33.1
)%
Total cash and cash equivalents
 
272,196

 
248,661

 
261,200

 
9.5
 %
 
4.2
 %
Securities - trading
 
25,896

 
25,764

 
22,318

 
0.5
 %
 
16.0
 %
Securities - available for sale
 
1,636,223

 
1,412,273

 
919,485

 
15.9
 %
 
77.9
 %
Securities - held to maturity
 
234,220

 
258,699

 
260,271

 
(9.5
)%
 
(10.0
)%
Total securities
 
1,896,339

 
1,696,736

 
1,202,074

 
11.8
 %
 
57.8
 %
Federal Home Loan Bank stock
 
31,955

 
19,196

 
10,334

 
66.5
 %
 
209.2
 %
Loans held for sale
 
171,031

 
72,850

 
40,725

 
134.8
 %
 
320.0
 %
Loans receivable
 
8,684,595

 
7,822,519

 
7,598,884

 
11.0
 %
 
14.3
 %
Allowance for loan losses
 
(96,485
)
 
(95,263
)
 
(89,028
)
 
1.3
 %
 
8.4
 %
Net loans receivable
 
8,588,110

 
7,727,256

 
7,509,856

 
11.1
 %
 
14.4
 %
Accrued interest receivable
 
38,593

 
37,676

 
31,259

 
2.4
 %
 
23.5
 %
Real estate owned held for sale, net
 
2,611

 
364

 
360

 
617.3
 %
 
625.3
 %
Property and equipment, net
 
171,809

 
151,212

 
154,815

 
13.6
 %
 
11.0
 %
Goodwill
 
330,874

 
242,659

 
242,659

 
36.4
 %
 
36.4
 %
Other intangibles, net
 
32,924

 
18,499

 
22,655

 
78.0
 %
 
45.3
 %
Bank-owned life insurance
 
177,467

 
163,265

 
162,668

 
8.7
 %
 
9.1
 %
Other assets
 
149,128

 
135,929

 
124,604

 
9.7
 %
 
19.7
 %
Total assets
 
$
11,863,037

 
$
10,514,303

 
$
9,763,209

 
12.8
 %
 
21.5
 %
LIABILITIES
 
 
 
 

 
 

 
 
 
 
Deposits:
 
 
 
 

 
 

 
 
 
 
Non-interest-bearing
 
$
3,657,817

 
$
3,469,294

 
$
3,265,544

 
5.4
 %
 
12.0
 %
Interest-bearing transaction and savings accounts
 
4,498,966

 
4,035,856

 
3,950,950

 
11.5
 %
 
13.9
 %
Interest-bearing certificates
 
1,320,265

 
1,180,674

 
966,937

 
11.8
 %
 
36.5
 %
Total deposits
 
9,477,048

 
8,685,824

 
8,183,431

 
9.1
 %
 
15.8
 %
Advances from Federal Home Loan Bank at fair value
 
540,189

 
221,184

 
202

 
144.2
 %
 
nm

Customer repurchase agreements and other borrowings
 
118,995

 
98,979

 
95,860

 
20.2
 %
 
24.1
 %
Junior subordinated debentures at fair value
 
114,091

 
113,110

 
98,707

 
0.9
 %
 
15.6
 %
Accrued expenses and other liabilities
 
102,061

 
82,530

 
71,344

 
23.7
 %
 
43.1
 %
Deferred compensation
 
40,338

 
40,478

 
41,039

 
(0.3
)%
 
(1.7
)%
Total liabilities
 
10,392,722

 
9,242,105

 
8,490,583

 
12.4
 %
 
22.4
 %
SHAREHOLDERS' EQUITY
 
 
 
 

 
 

 
 
 


Common stock
 
1,329,156

 
1,175,250

 
1,187,127

 
13.1
 %
 
12.0
 %
Retained earnings
 
134,055

 
109,942

 
90,535

 
21.9
 %
 
48.1
 %
Other components of shareholders' equity
 
7,104

 
(12,994
)
 
(5,036
)
 
nm

 
nm

Total shareholders' equity
 
1,470,315

 
1,272,198

 
1,272,626

 
15.6
 %
 
15.5
 %
Total liabilities and shareholders' equity
 
$
11,863,037

 
$
10,514,303

 
$
9,763,209

 
12.8
 %
 
21.5
 %
Common Shares Issued:
 
 
 
 

 
 

 
 
 
 
Shares outstanding at end of period
 
35,182,772

 
32,402,757

 
32,726,485

 
 
 
 
Common shareholders' equity per share (1)
 
$
41.79

 
$
39.26

 
$
38.89

 
 
 
 
Common shareholders' tangible equity per share (1) (2)
 
$
31.45

 
$
31.20

 
$
30.78

 
 
 
 
Common shareholders' tangible equity to tangible assets (2)
 
9.62
%
 
9.86
%
 
10.61
%
 
 
 
 
Consolidated Tier 1 leverage capital ratio
 
10.98
%
 
11.04
%
 
11.33
%
 
 
 
 
(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 - Fourth Quarter 2018 Results
January 23, 2019
Page 8

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
LOANS
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
$
1,430,097

 
$
1,271,363

 
$
1,284,363

 
12.5
%
 
11.3
%
Investment properties
 
2,131,059

 
1,943,793

 
1,937,423

 
9.6
%
 
10.0
%
Multifamily real estate
 
368,836

 
309,809

 
314,188

 
19.1
%
 
17.4
%
Commercial construction
 
172,410

 
154,071

 
148,435

 
11.9
%
 
16.2
%
Multifamily construction
 
184,630

 
172,433

 
154,662

 
7.1
%
 
19.4
%
One- to four-family construction
 
534,678

 
498,549

 
415,327

 
7.2
%
 
28.7
%
Land and land development:
 
 
 
 
 
 

 
 
 
 
Residential
 
188,508

 
171,610

 
164,516

 
9.8
%
 
14.6
%
Commercial
 
27,278

 
22,382

 
24,583

 
21.9
%
 
11.0
%
Commercial business
 
1,483,614

 
1,358,149

 
1,279,894

 
9.2
%
 
15.9
%
Agricultural business including secured by farmland
 
404,873

 
359,966

 
338,388

 
12.5
%
 
19.6
%
One- to four-family real estate
 
973,616

 
849,928

 
848,289

 
14.6
%
 
14.8
%
Consumer:
 
 
 
 
 
 
 
 
 
 
Consumer secured by one- to four-family real estate
 
568,979

 
539,143

 
522,931

 
5.5
%
 
8.8
%
Consumer-other
 
216,017

 
171,323

 
165,885

 
26.1
%
 
30.2
%
Total loans receivable
 
$
8,684,595

 
$
7,822,519

 
$
7,598,884

 
11.0
%
 
14.3
%
Restructured loans performing under their restructured terms
 
$
13,422

 
$
13,328

 
$
16,115

 
 
 
 
Loans 30 - 89 days past due and on accrual (1)
 
$
25,108

 
$
8,688

 
$
29,278

 
 
 
 
Total delinquent loans (including loans on non-accrual), net (2)
 
$
38,721

 
$
21,191

 
$
50,503

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

(1) Includes $3,000 of purchased credit-impaired loans at December 31, 2018 compared to $5,000 at September 30, 2018 and $943,000 at December 31, 2017.
(2) Delinquent loans include $519,000 of delinquent purchased credit-impaired loans at December 31, 2018 compared to $568,000 at September 30, 2018 and $2.2 million at December 31, 2017.

LOANS BY GEOGRAPHIC LOCATION
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington
 
$
4,324,588

 
49.8%
 
$
3,640,209

 
$
3,508,542

 
18.8
 %
 
23.3
 %
Oregon
 
1,636,152

 
18.8%
 
1,628,703

 
1,590,233

 
0.5
 %
 
2.9
 %
California
 
1,596,604

 
18.4%
 
1,496,817

 
1,415,076

 
6.7
 %
 
12.8
 %
Idaho
 
521,026

 
6.0%
 
504,297

 
492,603

 
3.3
 %
 
5.8
 %
Utah
 
57,318

 
0.7%
 
63,053

 
73,382

 
(9.1
)%
 
(21.9
)%
Other
 
548,907

 
6.3%
 
489,440

 
519,048

 
12.2
 %
 
5.8
 %
Total loans receivable
 
$
8,684,595

 
100.0%
 
$
7,822,519

 
$
7,598,884

 
11.0
 %
 
14.3
 %






BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 9


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)


The following table shows loan originations (excluding loans held for sale) activity for the three months ending December 31, 2018, September 30, 2018, and December 31, 2017 and for the twelve months ending December 31, 2018 and 2017 (in thousands):
LOAN ORIGINATIONS
Three Months Ended
 
Twelve Months Ended
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Dec 31, 2018
 
Dec 31, 2017
Commercial real estate
$
172,885

 
$
142,393

 
$
105,313

 
$
536,784

 
$
537,825

Multifamily real estate
16,731

 
2,215

 
6,033

 
25,771

 
77,409

Construction and land
397,702

 
370,484

 
303,414

 
1,460,536

 
1,216,227

Commercial business
206,922

 
303,472

 
148,004

 
839,290

 
647,079

Agricultural business
18,901

 
36,747

 
36,947

 
123,702

 
117,186

One-to four-family residential
81,522

 
51,459

 
69,541

 
177,332

 
249,558

Consumer
72,500

 
74,339

 
64,104

 
331,661

 
344,407

Total loan originations (excluding loans held for sale)
$
967,163

 
$
981,109

 
$
733,356

 
$
3,495,076

 
$
3,189,691






BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 10

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
  Quarters Ended
 
Twelve months ended
CHANGE IN THE
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Dec 31, 2018
 
Dec 31, 2017
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
95,263

 
$
93,875

 
$
89,100

 
$
89,028

 
$
85,997

Provision for loan losses
 
2,500

 
2,000

 
2,000

 
8,500

 
8,000

Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
66

 
12

 
19

 
1,646

 
372

Multifamily real estate
 

 

 

 

 
11

Construction and land
 
23

 
5

 
57

 
213

 
1,237

One- to four-family real estate
 
18

 
86

 
8

 
750

 
270

Commercial business
 
193

 
586

 
305

 
1,049

 
1,226

Agricultural business, including secured by farmland
 
23

 

 
1

 
64

 
134

Consumer
 
102

 
46

 
188

 
366

 
481

 
 
425

 
735

 
578

 
4,088

 
3,731

Loans charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 

 
(102
)
 
(549
)
 
(401
)
 
(1,180
)
Construction and land
 

 
(479
)
 

 
(479
)
 

One- to four-family real estate
 

 
(27
)
 
(38
)
 
(43
)
 
(38
)
Commercial business
 
(684
)
 
(473
)
 
(517
)
 
(2,051
)
 
(3,803
)
Agricultural business, including secured by farmland
 
(415
)
 
(5
)
 
(1,110
)
 
(756
)
 
(2,374
)
Consumer
 
(604
)
 
(261
)
 
(436
)
 
(1,401
)
 
(1,305
)
 
 
(1,703
)
 
(1,347
)
 
(2,650
)
 
(5,131
)
 
(8,700
)
Net charge-offs
 
(1,278
)
 
(612
)
 
(2,072
)
 
(1,043
)
 
(4,969
)
Balance, end of period
 
$
96,485

 
$
95,263

 
$
89,028

 
$
96,485

 
$
89,028

Net charge-offs / Average loans receivable
 
(0.015
)%
 
(0.008
)%
 
(0.027
)%
 
(0.013
)%
 
(0.065
)%


ALLOCATION OF
 
 
 
 
 
 
ALLOWANCE FOR LOAN LOSSES
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
Specific or allocated loss allowance:
 
 
 
 
 
 
Commercial real estate
 
$
27,132

 
$
25,147

 
$
22,824

Multifamily real estate
 
3,818

 
3,745

 
1,633

Construction and land
 
24,442

 
24,564

 
27,568

One- to four-family real estate
 
4,714

 
4,423

 
2,055

Commercial business
 
19,438

 
17,948

 
18,311

Agricultural business, including secured by farmland
 
3,778

 
3,505

 
4,053

Consumer
 
7,972

 
8,110

 
3,866

Total allocated
 
91,294

 
87,442

 
80,310

Unallocated
 
5,191

 
7,821

 
8,718

Total allowance for loan losses
 
$
96,485

 
$
95,263

 
$
89,028

Allowance for loan losses / Total loans receivable
 
1.11
%
 
1.22
%
 
1.17
%
Allowance for loan losses / Non-performing loans
 
616
%
 
603
%
 
329
%






BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 11


ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
NON-PERFORMING ASSETS
 
 
 
 
 
Loans on non-accrual status:
 
 
 
 
 
Secured by real estate:
 
 
 
 
 
Commercial
$
4,088

 
$
3,728

 
$
10,646

Construction and land
3,188

 
2,095

 
798

One- to four-family
1,544

 
1,827

 
3,264

Commercial business
2,936

 
2,921

 
3,406

Agricultural business, including secured by farmland
1,751

 
1,645

 
6,132

Consumer
1,241

 
1,703

 
1,297

 
14,748

 
13,919

 
25,543

Loans more than 90 days delinquent, still on accrual:
 
 
 

 
 

Secured by real estate:
 
 
 

 
 

Commercial

 
428

 

Construction and land

 

 
298

One- to four-family
658

 
1,076

 
1,085

Commercial business
1

 
87

 
18

Consumer
247

 
296

 
85

 
906

 
1,887

 
1,486

Total non-performing loans
15,654

 
15,806

 
27,029

Real estate owned (REO)
2,611

 
364

 
360

Other repossessed assets
592

 
573

 
107

Total non-performing assets
$
18,857

 
$
16,743

 
$
27,496

Total non-performing assets to total assets
0.16
%
 
0.16
%
 
0.28
%
Purchased credit-impaired loans, net
$
14,413

 
$
12,944

 
$
21,310


 
Quarters Ended
 
Twelve months ended
REAL ESTATE OWNED
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Dec 31, 2018
 
Dec 31, 2017
Balance, beginning of period
$
364

 
$
473

 
$
1,496

 
$
360

 
$
11,081

Additions from loan foreclosures
139

 

 

 
641

 
46

Additions from acquisitions
2,593

 

 

 
2,593

 

Additions from capitalized costs

 

 

 

 
54

Proceeds from dispositions of REO
(453
)
 
(90
)
 
(2,092
)
 
(838
)
 
(13,474
)
Gain on sale of REO
168

 
8

 
956

 
242

 
2,909

Valuation adjustments in the period
(200
)
 
(27
)
 

 
(387
)
 
(256
)
Balance, end of period
$
2,611

 
$
364

 
$
360

 
$
2,611

 
$
360





BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 12




ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEPOSIT COMPOSITION
 
 
 
 
 
 
 
Percentage Change
 
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
 
$
3,657,817

 
$
3,469,294

 
$
3,265,544

 
5.4
%
 
12.0
%
Interest-bearing checking
 
1,191,016

 
1,034,678

 
971,137

 
15.1
%
 
22.6
%
Regular savings accounts
 
1,842,581

 
1,627,560

 
1,557,500

 
13.2
%
 
18.3
%
Money market accounts
 
1,465,369

 
1,373,618

 
1,422,313

 
6.7
%
 
3.0
%
Total interest-bearing transaction and savings accounts
 
4,498,966

 
4,035,856

 
3,950,950

 
11.5
%
 
13.9
%
Total core deposits
 
8,156,783

 
7,505,150

 
7,216,494

 
8.7
%
 
13.0
%
Interest-bearing certificates
 
1,320,265

 
1,180,674

 
966,937

 
11.8
%
 
36.5
%
Total deposits
 
$
9,477,048

 
$
8,685,824

 
$
8,183,431

 
9.1
%
 
15.8
%


GEOGRAPHIC CONCENTRATION OF DEPOSITS
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
 
 
 
Washington
 
$
5,674,328

 
59.9%
 
$
4,849,807

 
$
4,506,249

 
17.0
 %
 
25.9
%
Oregon
 
1,891,145

 
20.0%
 
1,916,183

 
1,797,147

 
(1.3
)%
 
5.2
%
California
 
1,434,033

 
15.1%
 
1,462,417

 
1,432,819

 
(1.9
)%
 
0.1
%
Idaho
 
477,542

 
5.0%
 
457,417

 
447,216

 
4.4
 %
 
6.8
%
Total deposits
 
$
9,477,048

 
100.0%
 
$
8,685,824

 
$
8,183,431

 
9.1
 %
 
15.8
%


INCLUDED IN TOTAL DEPOSITS
 
Dec 31, 2018
 
Sep 30, 2018
 
Dec 31, 2017
Public non-interest-bearing accounts
 
$
96,009

 
$
76,957

 
$
86,987

Public interest-bearing transaction & savings accounts
 
121,392

 
110,802

 
111,732

Public interest-bearing certificates
 
30,089

 
25,367

 
23,685

Total public deposits
 
$
247,490

 
$
213,126

 
$
222,404

Total brokered deposits
 
$
377,347

 
$
325,154

 
$
40,748




 
 
 
 
 
 
 




BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 13

ADDITIONAL FINANCIAL INFORMATION
 
 
(in thousands) 
 
 
 
 
 
 
 
 
ACQUISITION OF SKAGIT BANCORP, INC.
 
 
The following table provides the estimated fair value of the assets acquired and liabilities assumed in the Skagit acquisition at November 1, 2018 (in thousands):
 
 
 
November 1, 2018
 
 
 
Cash paid
 
329

Fair value of common shares issued
 
171,429

Total consideration
 
171,758

 
 
 
Fair value of assets acquired:
 
 
Cash and cash equivalents
19,167

 
Securities
210,326

 
Loans receivable
632,374

 
Real estate owned held for sale
2,594

 
Property and equipment
15,788

 
Core deposit intangible
16,368

 
Deferred tax asset
95

 
Other assets
19,109

 
Total assets acquired
915,821

 
 
 
 
Fair value of liabilities assumed:
 
 
Deposits
810,209

 
Other liabilities
22,070

 
Total liabilities assumed
832,279

 
 
 
 
Net assets acquired
 
83,542

 
 
 
Goodwill
 
$
88,216

 
 
 
* Amounts recorded in this table are preliminary estimates of fair value. Additional adjustments to the acquisition accounting may be required with a measurement period of one-year from the acquisition date.





BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 14

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 DECEMBER 31, 2018
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Banner Corporation-consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
      Total capital to risk-weighted assets
 
$
1,302,239

 
13.12
%
 
$
794,072

 
8.00
%
 
$
992,590

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,203,155

 
12.12
%
 
595,554

 
6.00
%
 
595,554

 
6.00
%
      Tier 1 leverage capital to average assets
 
1,203,155

 
10.98
%
 
438,379

 
4.00
%
 
n/a

 
n/a

      Common equity tier 1 capital to risk-weighted assets
 
1,067,155

 
10.75
%
 
446,665

 
4.50
%
 
n/a

 
n/a

Banner Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
1,217,173

 
12.50
%
 
778,766

 
8.00
%
 
973,457

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,120,523

 
11.51
%
 
584,074

 
6.00
%
 
778,766

 
8.00
%
      Tier 1 leverage capital to average assets
 
1,120,523

 
10.50
%
 
426,799

 
4.00
%
 
533,498

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
1,120,523

 
11.51
%
 
438,056

 
4.50
%
 
632,747

 
6.50
%
Islanders Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
34,567

 
18.26
%
 
15,142

 
8.00
%
 
18,928

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
32,200

 
17.01
%
 
11,357

 
6.00
%
 
15,142

 
8.00
%
      Tier 1 leverage capital to average assets
 
32,200

 
11.16
%
 
11,543

 
4.00
%
 
14,428

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
32,200

 
17.01
%
 
8,518

 
4.50
%
 
12,303

 
6.50
%






BANR - Fourth Quarter 2018 Results
January 23, 2019
Page 15

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
 
Average Balance
Interest and Dividends
Yield / Cost(3)
 
Average Balance
Interest and Dividends
Yield / Cost(3)
 
Average Balance
Interest and Dividends
Yield / Cost(3)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Held for sale loans
$
83,741

$
1,056

5.00
%
 
$
72,249

$
895

4.91
%
 
$
75,359

$
822

4.33
 %
Mortgage loans
6,573,278

88,560

5.35
%
 
6,117,299

81,130

5.26
%
 
5,989,291

72,527

4.80
 %
Commercial/agricultural loans
1,631,133

22,257

5.41
%
 
1,511,077

20,545

5.39
%
 
1,454,639

17,549

4.79
 %
Consumer and other loans
172,934

2,754

6.32
%
 
141,503

2,298

6.44
%
 
144,412

2,247

6.17
 %
Total loans(1)
8,461,086

114,627

5.37
%
 
7,842,128

104,868

5.31
%
 
7,663,701

93,145

4.82
 %
Mortgage-backed securities
1,400,508

9,931

2.81
%
 
1,266,862

8,915

2.79
%
 
1,131,692

7,006

2.46
 %
Other securities
474,659

3,633

3.04
%
 
462,048

3,279

2.82
%
 
459,065

3,028

2.62
 %
Interest-bearing deposits with banks
54,577

305

2.22
%
 
65,191

332

2.02
%
 
60,109