Banner Corporation Earns $21.0 Million, or $0.61 per Diluted Share, in the Second Quarter of 2016; Second Quarter Highlighted by Strong Revenue Growth

WALLA WALLA, Wash., July 26, 2016 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported strong revenue generation propelled by growth from recent acquisitions that contributed to solid second quarter earnings.  Net income in the second quarter of 2016 increased to $21.0 million, or $0.61 per diluted share, compared to $17.8 million, or $0.52 per diluted share, in the preceding quarter and $13.2 million, or $0.64 per diluted share, in the second quarter a year ago.  The current quarter results were impacted by $2.4 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.05 per diluted share, and the preceding quarter results were impacted by $6.8 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.13 per diluted share.

In the first six months of 2016, net income increased to $38.7 million, or $1.14 per diluted share, compared to $25.4 million, or $1.25 per diluted share, in the first six months of 2015.

“Our second quarter performance clearly demonstrates the positive contribution from the AmericanWest acquisition and shows that our strategic plan is effective as we continue to build shareholder value,” stated Mark J. Grescovich, President and Chief Executive Officer.  “The merger integration continues to move along smoothly with the final stages of our electronic banking systems conversion scheduled for the third quarter.  This strategic combination is allowing us to deploy our super community bank model through a strengthened presence in Washington, Oregon and Idaho, as well as expanded opportunities in attractive growth markets in California and Utah.  As we deploy our super community bank business model across five western states, the combined bank is benefiting from our increased scale and diversified geographic footprint with important economic drivers and significant growth opportunities.”

At June 30, 2016, Banner Corporation had $9.92 billion in assets, $7.24 billion in net loans and $7.92 billion in deposits.  It operates 190 branch offices located in nine of the top 20 largest western Metropolitan Statistical Areas by population.

Second Quarter 2016 Highlights

• Net income increased to $21.0 million, compared to $17.8 million in the preceding quarter and increased 58% compared to $13.2 million in the second quarter of 2015.
• Acquisition-related expenses were $2.4 million which, net of tax benefit, reduced net income by $0.05 per diluted share for the quarter ended June 30, 2016.
• Revenues from core operations* increased to $114.4 million, compared to $111.0 million in the preceding quarter and increased 71% compared to $66.8 million in the second quarter a year ago.
• Net interest margin expanded to 4.20% for the current quarter, compared to 4.13% in the first quarter of 2016 and 4.19% a year ago.
• Excluding acquisition accounting adjustments, the net interest margin before discount accretion* was 4.01%, the same as in the preceding quarter and was 4.15% in the second quarter a year ago.
• Deposit fees and other service charges were $12.2 million, compared to $11.8 million in the preceding quarter and $9.6 million a year ago.
• Revenues from mortgage banking operations were $6.6 million compared to $5.6 million in the preceding quarter and $4.7 million a year ago.
• Provision for loan losses was $2.0 million.
• Net loans increased by $3.08 billion, or 74% year-over-year and increased $136.8 million during the current quarter.
• Total deposits increased by $3.62 billion, or 84%, compared to a year ago and decreased $110.0 million during the current quarter.
• Core deposits increased by $3.18 billion, or 90%, year-over-year, and represented 85% of total deposits at June 30, 2016.
• Declared quarterly dividend to shareholders of $0.21 per share.
• Common stockholders' tangible equity per share* increased to $30.86 at June 30, 2016, compared to $30.38 at the preceding quarter end and $30.22 a year ago.
• The ratio of tangible common stockholders' equity to tangible assets* remained strong at 11.00% at June 30, 2016 compared to 10.98% at the preceding quarter end and 12.26% a year ago.

*Revenues from core operations and non-interest income from core operations (both of which exclude fair value adjustments and gains and losses on the sale of securities), acquisition accounting impact on net interest margin, non-interest expense from core operations (which excludes acquisition-related costs), the adjusted allowance for loan losses (which includes net loan discounts on acquired loans) and references to tangible common stockholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets) 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 three pages of this press release.

Acquisition of AmericanWest Bank

Effective October 1, 2015, Banner completed the acquisition of Starbuck Bancshares, Inc. ("Starbuck") and its wholly owned subsidiary AmericanWest Bank.  The merger was accounted for using the acquisition method of accounting.  Accordingly, the acquired assets (including identifiable intangible assets) and assumed liabilities of Starbuck were recognized 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 allocated 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 post-closing measurement period.  During the second quarter of 2016, post-closing adjustments reduced goodwill by $228,000 and totaled $3.2 million in the first six months of 2016.

In addition to the acquisition of AmericanWest Bank, the acquisition of Siuslaw Financial Group and its wholly-owned subsidiary Siuslaw Bank ("Siuslaw") on March 6, 2015 had a significant impact on the current and historical operating results of Banner.  For additional details regarding acquisitions and merger related expenses, see the tables under Business Combinations on page 11 of this press release.

Income Statement Review

Banner’s second quarter net interest income, before the provision for loan losses, increased to $93.1 million, compared to $91.0 million in the preceding quarter.  The second quarter 2016 net interest income increased 81% compared to $51.5 million in the second quarter a year ago, largely reflecting the acquisition of AmericanWest Bank and continued client acquisition.  In the first six months of 2016, Banner’s net interest income, before the provision for loan losses, increased 88% to $184.2 million compared to $98.0 million in the first six months of 2015.

“Our net interest margin expanded seven basis points compared to the preceding quarter and was virtually unchanged compared to a year ago as a result of increased accretion of acquisition accounting discounts,” said Grescovich.  “By contrast, excluding the accretion impact of acquisition accounting, the net interest margin before discount accretion was unchanged compared to the preceding quarter, but declined by fourteen basis points compared to a year ago.”

Net interest margin is enhanced by the amortization of acquisition accounting discounts on purchased loans acquired in the acquisitions, which are accreted into loan interest income, as well as by net premiums on non-market-rate certificate of deposit liabilities assumed, which are amortized as a reduction to deposit interest expense.  Banner's net interest margin was 4.20% for the second quarter of 2016, which included 14 basis points as a result of accretion from acquisition accounting loan discounts, two basis points from the amortization of deposit premiums and three basis points as a result of the impact of the net loan acquisition discounts on average earning assets from both the AmericanWest Bank and Siuslaw acquisitions, compared to a net interest margin of 4.13% in the preceding quarter and 4.19% in the second quarter a year ago.  Excluding the effects of acquisition accounting, the net interest margin before discount accretion was 4.01% in the second quarter and the preceding quarter and 4.15% in the second quarter a year ago.  The decline compared to a year earlier primarily reflects lower average yields on the loans acquired in the AmericanWest acquisition as well as the proportionally larger size of the securities portfolio following that acquisition.

Average interest-earning asset yields increased six basis points to 4.38% compared to 4.32% for the preceding quarter and decreased three basis points from 4.41% for the second quarter a year ago.  Loan yields increased eight basis points compared to the preceding quarter and decreased four basis points from the second quarter a year ago.  The accretion of discounts and related balance sheet impact on the loans acquired through the acquisitions added 18 basis points to reported loan yields for the quarter.  Deposit costs decreased one basis point compared to the preceding quarter and decreased two basis points compared to the second quarter a year ago.  Amortization of acquisition accounting net premiums on certificates of deposit reduced the cost of deposits by two basis points in the second quarter 2016.  The total cost of funds remained unchanged at 0.20% during the second quarter compared to the preceding quarter and declined three basis points compared to 0.23% for the second quarter a year ago.

“Our credit quality metrics continue to reflect our moderate risk profile,” said Grescovich.  “However, as expected, due to loan growth and the post-purchase renewal-driven migration of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses during the second quarter.  This compares to no provision during the preceding quarter or year ago quarter.

“Revenues from mortgage banking remain strong, as home purchase and refinance activity continues to flourish in our markets and Banner’s increased market presence and investment in this business line continues to produce solid results,” said Grescovich.   "In addition, for the quarter we recognized $1.0 million of gains on the sale of multifamily loans."  Mortgage banking revenues including gains on multifamily loan sales increased 17% to $6.6 million in the second quarter compared to $5.6 million in the preceding quarter and increased 41% compared to $4.7 million in the second quarter of 2015.  Home purchase activity accounted for 66% of second quarter one- to four-family mortgage banking loan originations.  In the first six months of 2016, mortgage banking revenues increased 39% to $12.3 million compared to $8.8 million in the same period one year ago.  Gains on the sale of multifamily loans were $1.7 million for the first six months of 2016.

Deposit fees and other service charges increased 3% to $12.2 million in the second quarter compared to $11.8 million in the preceding quarter and increased 28% compared to $9.6 million in the second quarter a year ago.  Year-to-date, deposit fees and other service charges increased 36% to $24.0 million compared to $17.7 million in the first six months of 2015.

Total revenues were $113.7 million for the quarter ended June 30, 2016, compared to $111.0 million in the preceding quarter and $67.6 million in the second quarter a year ago.  Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) increased 3% to $114.4 million in the second quarter ended June 30, 2016, compared to $111.0 million in the preceding quarter and increased 71% compared to $66.8 million in the second quarter of 2015.  Total revenues for the first six months of 2016 were $224.7 million compared to $127.8 million in the first six months of 2015, with the significant increase largely attributable to the acquisition of AmericanWest Bank.  Year-to-date, revenues from core operations* increased 78% to $225.4 million compared to $126.5 million in the first six months of 2015.

Banner’s second quarter 2016 results included a $377,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, as well as a $380,000 net loss on the sale of securities.  In the preceding quarter, results included a $29,000 net gain for fair value adjustments, as well as a $21,000 net gain on the sale of securities.  In the second quarter a year ago, results included a $797,000 net gain for fair value adjustments, which was partially offset by $28,000 in net loss on the sale of securities.

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 $20.5 million in the second quarter of 2016, compared to $20.0 million in the first quarter of 2016 and $16.1 million in the second quarter a year ago.  Non-interest income from core operations,* which excludes gains and losses on sale of securities and net changes in the valuation of financial instruments, was $21.3 million, compared to $19.9 million for the second quarter of 2016 and $15.4 million in the second quarter a year ago.  For the first six months of the year, Banner’s total non-interest income was $40.5 million compared to $29.8 million in the same period a year ago and non-interest income from core operations* was $41.2 million compared to $28.5 million for the same periods, respectively.

Banner’s total non-interest expenses were $79.9 million in the second quarter of 2016, compared to $84.0 million in the preceding quarter and $47.7 million in the second quarter of 2015.  The year-over-year increase in non-interest expenses was largely attributable to acquisition-related expenses and incremental costs associated with operating the 98 branches and the related operations acquired in the AmericanWest Bank merger on October 1, 2015, as well as generally increased compensation, occupancy and payment and card processing services reflecting increased transaction volume.  There were $2.4 million in acquisition-related expenses in the current quarter compared to $6.8 million in the preceding quarter and $3.9 million in the second quarter a year ago.  In addition, during the quarter, $1.4 million of expense was accrued for product benefits that we have determined were not properly credited to certain clients in prior periods.  The errors were the result of systems processes that have since been rectified and primarily related to bonus interest accruals over a six year period.  In the first six months of 2016, total non-interest expenses were $163.9 million compared to $89.6 million in the first six months of 2015.

For the second quarter of 2016, Banner recorded $10.8 million in state and federal income tax expense for an effective tax rate of 34.1%, which reflects normal statutory tax rates reduced by the effect of tax-exempt income and certain tax credits.

Balance Sheet Review

Banner’s total assets increased by 91% to $9.92 billion at June 30, 2016, compared to $5.19 billion a year ago, largely as a result of the AmericanWest Bank acquisition but also due to organic growth.  Total assets were $9.75 billion at March 31, 2016.  The total of securities and interest-bearing deposits held at other banks was $1.54 billion at June 30, 2016, compared to $1.59 billion at March 31, 2016 and $650.9 million a year ago.  The increase in the securities portfolio compared to a year earlier is primarily a result of securities held by AmericanWest at the time of the merger.  The average effective duration of Banner's securities portfolio was approximately 2.6 years at June 30, 2016 compared to 2.9 years at March 31, 2016.

“Net loans increased by $3.08 billion, or 74%, year-over-year due to the AmericanWest Bank acquisition and strong organic growth.  Net loans increased 2% compared to the preceding quarter end.  Loan production remains solid, as does the regional economy, and we continue to see significant potential for growth in our loan origination pipelines,” said Grescovich.

Net loans increased 74% to $7.24 billion at June 30, 2016, compared to $4.17 billion a year ago.  Net loans were $7.11 billion at March 31, 2016.  Commercial real estate and multifamily real estate loans increased 2% to $3.49 billion at June 30, 2016, compared to $3.44 billion at March 31, 2016, and increased 92% compared to $1.82 billion a year ago.  Commercial business loans increased 1% to $1.23 billion at June 30, 2016, compared to $1.22 billion three months earlier and increased 52% compared to $811.6 million a year ago.  Agricultural business loans increased 9% to $370.5 million at June 30, 2016, compared to $340.4 million three months earlier and increased 60% compared to $231.0 million a year ago.  Total construction, land and land development loans increased 13% to $713.3 million at June 30, 2016, compared to $632.1 million at March 31, 2016, and increased 56% compared to $457.3 million a year earlier.

Banner’s total deposits were $7.92 billion at June 30, 2016, a slight decline compared to $8.03 billion at March 31, 2016, due to seasonal factors as well as the managed run off of certificates of deposit, but increased 84% compared to $4.30 billion a year ago.  In connection with certain product changes earlier in the year, Banner converted approximately $420 million of former AmericanWest Bank interest-bearing deposits to non-interest-bearing deposits during the preceding quarter.  As a result of the product changes, in addition to organic growth, non-interest-bearing account balances increased 104% to $3.02 billion at June 30, 2016, compared to $1.48 billion a year ago.  Interest-bearing transaction and savings accounts increased 80% to $3.69 billion compared to $2.05 billion a year ago.  Certificates of deposit increased 58% to $1.21 billion at June 30, 2016, compared to $765.8 million a year earlier.  Brokered deposits totaled $93.0 million at June 30, 2016, compared to $135.6 million at March 31, 2016 and $9.6 million a year ago.

Core deposits represented 85% of total deposits at June 30, 2016, compared to 84% of total deposits at March 31, 2016 and 82% of total deposits a year earlier.  The cost of deposits was 0.14% for the quarter ended June 30, 2016, a one basis point decrease from 0.15% in the preceding quarter, and declined two basis points from 0.16% for the quarter ended June 30, 2015.

At June 30, 2016, total common stockholders' equity was $1.34 billion, or $38.97 per share, compared to $1.32 billion at March 31, 2016 and $660.7 million a year ago.  The year-over-year increase was mostly due to 13.23 million shares of voting common and non-voting common stock issued on October 1, 2015 in connection with the AmericanWest Bank acquisition, which were valued at $47.67 per share and increased stockholders’ equity by $630.7 million.  At June 30, 2016, tangible common stockholders' equity*, which excludes goodwill and other intangible assets, was $1.06 billion, or 11.00% of tangible assets*, compared to $1.04 billion, or 10.98% of tangible assets, at March 31, 2016, and $633.8 million, or 12.26% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $30.86 at June 30, 2016, compared to $30.22 per share a year ago.

Banner Corporation and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” under the Basel III and Dodd Frank regulatory standards.  At June 30, 2016, Banner Corporation's common equity Tier 1 capital ratio was 11.85%, its Tier 1 leverage capital to average assets ratio was 11.43%, and its total capital to risk-weighted assets ratio was 13.51%.

Credit Quality

In accordance with acquisition accounting, loans acquired from AmericanWest Bank and Siuslaw were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, of which a portion reflects a discount for possible credit losses.  Credit discounts are included in the determination of fair value and as a result no allowance for loan and lease losses is recorded for acquired loans at the acquisition date.  Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisitions of AmericanWest Bank and Siuslaw.

The allowance for loan losses was $81.3 million at June 30, 2016, or 1.11% of total loans outstanding and 321% of non-performing loans compared to $77.3 million at June 30, 2015, or 1.82% of total loans outstanding and 332% of non-performing loans.  Banner had net recoveries of $1.1 million in the second quarter compared to net recoveries of $189,000 in the first quarter of 2016 and net recoveries of $2.0 million in the second quarter a year ago.  However, primarily as a result of loan growth and the post-purchase renewal-driven migration of acquired loans out of the discounted loan portfolio, Banner recorded a $2.0 million provision for loan losses in the current quarter.  If the allowance for loan losses were grossed up for the remaining loan discount, the adjusted allowance for loan losses to adjusted loans would have been 1.63% as of June 30, 2016.  Non-performing loans were $25.3 million at June 30, 2016, compared to $15.6 million at March 31, 2016 and $23.2 million a year ago.  Real estate owned and other repossessed assets decreased to $6.4 million at June 30, 2016, compared to $7.4 million at March 31, 2016, but increased slightly compared to $6.1 million a year ago.

Banner's non-performing assets were 0.32% of total assets at June 30, 2016, compared to 0.24% at March 31, 2016 and 0.57% a year ago.  Non-performing assets were $31.7 million at June 30, 2016, compared to $23.0 million at March 31, 2016 and $29.4 million a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $45.4 million at June 30, 2016 compared to $53.3 million at March 31, 2016 and $5.5 million a year ago.

Conference Call

Banner will host a conference call on Wednesday, July 27, 2016, at 8:00 a.m. PDT, to discuss its second quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10088761, or at www.bannerbank.com.

About the Company

On October 1, 2015, Banner Corporation completed the acquisition of AmericanWest Bank which was merged into Banner Bank, a transformational merger that brought together two financially strong, well-respected institutions and created a leading Western bank.  Banner Corporation is now a $9.9 billion bank holding company operating two commercial banks in five Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans.  Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner's operating and stock price performance.

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the merger of Banner Bank and Siuslaw Bank and the merger of Banner Bank and AmericanWest Bank 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; (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, Utah 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, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.

RESULTS OF OPERATIONS		Quarters Ended												Six months ended
(in thousands except shares and per share data)		Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
INTEREST INCOME:
Loans receivable		$	88,935			$	86,958			$	51,078			$	175,893			$	97,443
Mortgage-backed securities		5,274				5,390				1,275				10,664				2,302
Securities and cash equivalents		3,112				2,953				1,723				6,065				3,400
		97,321				95,301				54,076				192,622				103,145
INTEREST EXPENSE:
Deposits		2,771				2,946				1,768				5,717				3,501
Federal Home Loan Bank advances		339				279				3				618				20
Other borrowings		78				75				48				153				91
Junior subordinated debentures		985				958				800				1,944				1,541
		4,173				4,258				2,619				8,432				5,153
Net interest income before provision for loan losses		93,148				91,043				51,457				184,190				97,992
PROVISION FOR LOAN LOSSES		2,000				—				—				2,000				—
Net interest income		91,148				91,043				51,457				182,190				97,992
NON-INTEREST INCOME:
Deposit fees and other service charges		12,213				11,818				9,563				24,031				17,689
Mortgage banking operations		6,625				5,643				4,703				12,268				8,812
Bank owned life insurance		1,128				1,185				453				2,313				891
Miscellaneous		1,328				1,263				653				2,592				1,136
		21,294				19,909				15,372				41,204				28,528
Net gain (loss) on sale of securities		(380		)		21				(28		)		(359		)		(537		)
Net change in valuation of financial instruments carried at fair value		(377		)		29				797				(348		)		1,847
Total non-interest income		20,537				19,959				16,141				40,497				29,838
NON-INTEREST EXPENSE:
Salary and employee benefits		45,175				46,564				26,744				91,738				51,031
Less capitalized loan origination costs		(4,907		)		(4,250		)		(3,787		)		(9,157		)		(6,625		)
Occupancy and equipment		11,052				10,388				6,357				21,440				12,363
Information / computer data services		4,852				4,920				2,273				9,772				4,526
Payment and card processing services		5,501				4,785				3,742				10,286				6,758
Professional services		865				2,614				721				3,479				1,536
Advertising and marketing		2,474				1,734				2,198				4,207				3,808
Deposit insurance		1,311				1,338				625				2,649				1,192
State/municipal business and use taxes		770				838				455				1,608				908
Real estate operations		137				397				167				534				191
Amortization of core deposit intangibles		1,808				1,808				367				3,615				983
Miscellaneous		8,437				6,085				3,987				14,526				7,445
		77,475				77,221				43,849				154,697				84,116
Acquisition related costs		2,412				6,813				3,885				9,224				5,533
Total non-interest expense		79,887				84,034				47,734				163,921				89,649
Income before provision for income taxes		31,798				26,968				19,864				58,766				38,181
PROVISION FOR INCOME TAXES		10,841				9,194				6,615				20,035				12,798
NET INCOME		$	20,957			$	17,774			$	13,249			$	38,731			$	25,383
Earnings per share available to common shareholders:
Basic		$	0.62			$	0.52			$	0.64			$	1.14			$	1.25
Diluted		$	0.61			$	0.52			$	0.64			$	1.14			$	1.25
Cumulative dividends declared per common share		$	0.21			$	0.21			$	0.18			$	0.42			$	0.36
Weighted average common shares outstanding:
Basic		34,069,887				34,023,800				20,725,833				34,053,105				20,245,905
Diluted		34,117,151				34,103,727				20,789,533				34,090,647				20,301,448
Increase (decrease)  in common shares outstanding		129,109				(20,804		)		(5,960		)		108,305				1,399,133

FINANCIAL CONDITION																		Percentage Change
(in thousands except shares and per share data)		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015				Prior Qtr			Prior Yr Qtr
ASSETS
Cash and due from banks		$	158,446			$	153,706			$	117,657			$	85,598			3.1	%		85.1	%
Interest-bearing deposits		76,210				106,864				144,260				98,376				(28.7	)%		(22.5	)%
Total cash and cash equivalents		234,656				260,570				261,917				183,974				(9.9	)%		27.5	%
Securities - trading		33,753				33,994				34,134				32,404				(0.7	)%		4.2	%
Securities - available for sale		1,177,757				1,199,279				1,138,573				387,876				(1.8	)%		203.6	%
Securities - held to maturity		254,666				246,320				220,666				132,197				3.4	%		92.6	%
Federal Home Loan Bank stock		23,347				13,347				16,057				6,120				74.9	%		281.5	%
Loans held for sale		113,230				47,523				44,712				1,154				138.3	%		nm
Loans receivable		7,325,925				7,185,999				7,314,504				4,245,322				1.9	%		72.6	%
Allowance for loan losses		(81,318		)		(78,197		)		(78,008		)		(77,329		)		4.0	%		5.2	%
Net loans		7,244,607				7,107,802				7,236,496				4,167,993				1.9	%		73.8	%
Accrued interest receivable		30,052				30,674				29,627				16,792				(2.0	)%		79.0	%
Real estate owned held for sale, net		6,147				7,207				11,627				6,105				(14.7	)%		0.7	%
Property and equipment, net		167,597				168,807				167,604				101,141				(0.7	)%		65.7	%
Goodwill		244,583				244,811				247,738				21,148				(0.1	)%		nm
Other intangibles, net		33,724				35,598				37,472				5,743				(5.3	)%		nm
Bank-owned life insurance		158,001				156,928				156,865				71,744				0.7	%		120.2	%
Other assets		194,085				192,734				192,810				59,867				0.7	%		224.2	%
Total assets		$	9,916,205			$	9,745,594			$	9,796,298			$	5,194,258			1.8	%		90.9	%
LIABILITIES
Deposits:
Non-interest-bearing		$	3,023,986			$	3,036,330			$	2,619,618			$	1,484,315			(0.4	)%		103.7	%
Interest-bearing transaction and savings accounts		3,687,118				3,705,658				4,081,580				2,047,050				(0.5	)%		80.1	%
Interest-bearing certificates		1,208,671				1,287,873				1,353,870				765,780				(6.1	)%		57.8	%
Total deposits		7,919,775				8,029,861				8,055,068				4,297,145				(1.4	)%		84.3	%
Advances from Federal Home Loan Bank at fair value		325,383				75,400				133,381				236				331.5	%		nm
Customer repurchase agreements and other borrowings		112,308				106,132				98,325				94,523				5.8	%		18.8	%
Junior subordinated debentures at fair value		93,298				92,879				92,480				84,694				0.5	%		10.2	%
Accrued expenses and other liabilities		87,441				81,485				76,511				36,131				7.3	%		142.0	%
Deferred compensation		39,483				39,682				40,474				20,879				(0.5	)%		89.1	%
Total liabilities		8,577,688				8,425,439				8,496,239				4,533,608				1.8	%		89.2	%
SHAREHOLDERS' EQUITY
Common stock		1,263,085				1,262,050				1,261,174				628,327				0.1	%		101.0	%
Retained earnings		63,967				50,230				39,615				32,096				27.3	%		99.3	%
Other components of shareholders' equity		11,465				7,875				(730		)		227				45.6	%		nm
Total shareholders' equity		1,338,517				1,320,155				1,300,059				660,650				1.4	%		102.6	%
Total liabilities and shareholders' equity		$	9,916,205			$	9,745,594			$	9,796,298			$	5,194,258			1.8	%		90.9	%
Common Shares Issued:
Shares outstanding at end of period		34,350,560				34,221,451				34,242,255				20,970,681
Common shareholders' equity per share (1)		$	38.97			$	38.58			$	37.97			$	31.50
Common shareholders' tangible equity per share (1) (2)		$	30.86			$	30.38			$	29.64			$	30.22
Common shareholders' tangible equity to tangible assets (2)		11.00		%		10.98		%		10.67		%		12.26		%
Consolidated Tier 1 leverage capital ratio		11.85		%		11.28		%		11.06		%		13.89		%

	(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 three pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
																		Percentage Change
LOANS		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015				Prior Qtr			Prior Yr Qtr
Commercial real estate:
Owner occupied		$	1,351,015			$	1,328,034			$	1,327,807			$	616,324			1.7	%		119.2	%
Investment properties		1,849,123				1,805,243				1,765,353				996,714				2.4	%		85.5	%
Multifamily real estate		287,783				307,019				472,976				205,276				(6.3	)%		40.2	%
Commercial construction		105,594				87,711				72,103				45,137				20.4	%		133.9	%
Multifamily construction		97,697				79,737				63,846				60,075				22.5	%		62.6	%
One- to four-family construction		330,474				297,348				278,469				230,554				11.1	%		43.3	%
Land and land development:
Residential		156,964				142,841				126,773				105,146				9.9	%		49.3	%
Commercial		22,578				24,493				33,179				16,419				(7.8	)%		37.5	%
Commercial business		1,231,182				1,224,915				1,207,944				811,623				0.5	%		51.7	%
Agricultural business including secured by farmland		370,515				340,350				376,531				230,964				8.9	%		60.4	%
One- to four-family real estate		878,986				910,719				952,633				541,807				(3.5	)%		62.2	%
Consumer:
Consumer secured by one- to four-family real estate		485,545				481,590				478,420				244,216				0.8	%		98.8	%
Consumer-other		158,469				155,999				158,470				141,067				1.6	%		12.3	%
Total loans outstanding		$	7,325,925			$	7,185,999			$	7,314,504			$	4,245,322			1.9	%		72.6	%
Restructured loans performing under their restructured terms		$	18,835			$	19,450			$	21,777			$	26,114
Loans 30 - 89 days past due and on accrual (1)		$	14,447			$	28,264			$	18,834			$	4,185
Total delinquent loans (including loans on non-accrual), net (2)		$	38,038			$	43,986			$	30,994			$	27,476
Total delinquent loans / Total loans outstanding		0.52		%		0.61		%		0.42		%		0.65		%

(1) Includes $1.4 million of purchased credit-impaired loans at June 30, 2016 compared to $1.6 million at March 31, 2016, $4.3 million at December 31, 2015, and none at June 30, 2015.(2) Delinquent loans include $4.4 million of delinquent purchased credit-impaired loans at June 30, 2016 compared to $4.9 million at March 31, 2016, $6.3 million at December 31, 2015 and $1.1 million at June 30, 2015.

LOANS BY GEOGRAPHIC LOCATION		Jun 30, 2016								Mar 31, 2016							Dec 31, 2015								Jun 30, 2015
		Amount				Percentage				Amount				Percentage			Amount				Percentage				Amount				Percentage
Washington		$	3,401,656				46.4	%		$	3,333,912			46.4	%		$	3,343,112				45.7	%		$	2,405,570				56.7	%
Oregon		1,461,906					20.0	%		1,420,749				19.8	%		1,446,531					19.8	%		1,133,563					26.7	%
California		1,184,392					16.2	%		1,173,203				16.3	%		1,234,016					16.9	%		76,615					1.8	%
Idaho		505,594					6.9	%		493,905				6.9	%		496,870					6.8	%		339,554					8.0	%
Utah		294,102					4.0	%		289,082				4.0	%		325,011					4.4	%		8,339					0.2	%
Other		478,275					6.5	%		475,148				6.6	%		468,964					6.4	%		281,681					6.6	%
Total loans		$	7,325,925				100.0	%		$	7,185,999			100.0	%		$	7,314,504				100.0	%		$	4,245,322				100.0	%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Quarters Ended												Six months ended
CHANGE IN THE		Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period		$	78,197			$	78,008			$	75,365			$	78,008			$	75,907
Provision for loan losses		2,000				—				—				2,000				—
Recoveries of loans previously charged off:
Commercial real estate		26				38				197				64				211
Multifamily real estate		—				—				113				—				113
Construction and land		124				471				843				595				951
One- to four-family real estate		558				12				93				570				99
Commercial business		622				720				499				1,342				677
Agricultural business, including secured by farmland		160				17				1,225				177				1,520
Consumer		249				207				236				456				282
		1,739				1,465				3,206				3,204				3,853
Loans charged off:
Commercial real estate		—				(180		)		(64		)		(180		)		(64		)
Construction and land		—				—				(2		)		—				(2		)
One- to four-family real estate		(34		)		—				(40		)		(34		)		(115		)
Commercial business		(171		)		(139		)		(327		)		(310		)		(434		)
Agricultural business, including secured by farmland		—				(567		)		(246		)		(567		)		(1,064		)
Consumer		(413		)		(390		)		(563		)		(803		)		(752		)
		(618		)		(1,276		)		(1,242		)		(1,894		)		(2,431		)
Net recoveries		1,121				189				1,964				1,310				1,422
Balance, end of period		$	81,318			$	78,197			$	77,329			$	81,318			$	77,329
Net recoveries / Average loans outstanding		0.015		%		0.003		%		0.047		%		0.018		%		0.035		%

ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015
Specific or allocated loss allowance:
Commercial real estate		$	20,149			$	19,732			$	20,716			$	18,948
Multifamily real estate		1,515				2,853				4,195				4,273
Construction and land		31,861				29,318				27,131				25,415
One- to four-family real estate		2,204				2,170				4,732				8,542
Commercial business		17,758				15,118				13,856				13,184
Agricultural business, including secured by farmland		2,891				4,282				3,645				2,679
Consumer		3,743				3,541				902				780
Total allocated		80,121				77,014				75,177				73,821
Unallocated		1,197				1,183				2,831				3,508
Total allowance for loan losses		$	81,318			$	78,197			$	78,008			$	77,329
Allowance for loan losses / Total loans outstanding		1.11		%		1.09		%		1.07		%		1.82		%
Allowance for loan losses / Non-performing loans		321		%		501		%		512		%		332		%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
	Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial	$	11,753			$	4,145			$	3,751			$	1,072
Multifamily	31				—				—				—
Construction and land	1,738				2,250				2,260				3,153
One- to four-family	3,512				4,803				4,700				5,662
Commercial business	1,426				1,558				2,159				179
Agricultural business, including secured by farmland	4,459				663				697				1,560
Consumer	1,165				906				703				861
	24,084				14,325				14,270				12,487
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial	—				—				—				1,835
Multifamily	—				—				—				570
Construction and land	—				—				—				5,951
One- to four-family	896				1,039				899				1,976
Commercial business	—				—				8				—
Consumer	337				251				45				472
	1,233				1,290				952				10,804
Total non-performing loans	25,317				15,615				15,222				23,291
Real estate owned (REO)	6,147				7,207				11,627				6,105
Other repossessed assets	256				202				268				—
Total non-performing assets	$	31,720			$	23,024			$	27,117			$	29,396
Total non-performing assets / Total assets	0.32		%		0.24		%		0.28		%		0.57		%
Purchased credit-impaired loans, net	$	45,376			$	53,271			$	58,600			$	5,458

	Quarters Ended												Six months ended
REAL ESTATE OWNED	Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
Balance, beginning of period	$	7,207			$	11,627			$	4,922			$	11,627			$	3,352
Additions from loan foreclosures	376				2				1,473				378				2,141
Additions from acquisitions	—				400				—				400				2,525
Additions from capitalized costs	—				—				298				—				298
Proceeds from dispositions of REO	(1,656		)		(4,666		)		(511		)		(6,322		)		(2,249		)
Gain on sale of REO	651				49				105				700				220
Valuation adjustments in the period	(431		)		(205		)		(182		)		(636		)		(182		)
Balance, end of period	$	6,147			$	7,207			$	6,105			$	6,147			$	6,105

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
DEPOSIT COMPOSITION																		Percentage Change
		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015				Prior Qtr			Prior Yr Qtr
Non-interest-bearing		$	3,023,986			$	3,036,330			$	2,619,618			$	1,484,315			(0.4	)%		103.7	%
Interest-bearing checking		830,625				767,460				1,159,846				477,492				8.2	%		74.0	%
Regular savings accounts		1,321,518				1,327,558				1,284,642				1,003,189				(0.5	)%		31.7	%
Money market accounts		1,534,975				1,610,640				1,637,092				566,369				(4.7	)%		171.0	%
Interest-bearing transaction & savings accounts		3,687,118				3,705,658				4,081,580				2,047,050				(0.5	)%		80.1	%
Interest-bearing certificates		1,208,671				1,287,873				1,353,870				765,780				(6.1	)%		57.8	%
Total deposits		$	7,919,775			$	8,029,861			$	8,055,068			$	4,297,145			(1.4	)%		84.3	%

GEOGRAPHIC CONCENTRATION OF DEPOSITS		Jun 30, 2016								Mar 31, 2016								Dec 31, 2015								Jun 30, 2015
		Amount				Percentage				Amount				Percentage				Amount				Percentage				Amount				Percentage
Washington		$	4,158,639				52.5	%		$	4,209,332				52.4	%		$	4,219,304				52.4	%		$	2,858,101				66.5	%
Oregon		1,686,160					21.3	%		1,668,421					20.8	%		1,648,421					20.4	%		1,195,413					27.8	%
California		1,485,795					18.8	%		1,565,326					19.5	%		1,592,365					19.8	%		—				—%
Idaho		421,427					5.3	%		428,681					5.3	%		435,099					5.4	%		243,631					5.7	%
Utah		167,754					2.1	%		158,101					2.0	%		159,879					2.0	%		—				—%
Total deposits		$	7,919,775				100.0	%		$	8,029,861				100.0	%		$	8,055,068				100.0	%		$	4,297,145				100.0	%

INCLUDED IN TOTAL DEPOSITS		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015
Public non-interest-bearing accounts		$	102,486			$	82,527			$	85,489			$	50,894
Public interest-bearing transaction & savings accounts		127,045				123,713				123,941				65,136
Public interest-bearing certificates		26,574				29,983				31,281				33,577
Total public deposits		$	256,105			$	236,223			$	240,711			$	149,607
Total brokered deposits		$	92,982			$	135,603			$	162,936			$	9,646

ADDITIONAL FINANCIAL INFORMATION
(in thousands)
BUSINESS COMBINATIONS
ACQUISITION OF STARBUCK BANCSHARES, INC.*		October 1, 2015
Cash paid						$	130,000
Fair value of common shares issued						630,674
Total consideration						760,674
Fair value of assets acquired:
Cash and cash equivalents		$	95,821
Securities		1,037,238
Loans receivable		2,999,130
Real estate owned held for sale		6,105
Property and equipment		66,728
Core deposit intangible		33,500
Deferred tax asset		108,454
Other assets		113,009
Total assets acquired		4,459,985
Fair value of liabilities assumed:
Deposits		3,638,596
FHLB advances		221,442
Junior subordinated debentures		5,806
Other liabilities		56,359
Total liabilities assumed		3,922,203
Net assets acquired						537,782
Goodwill						$	222,892

* Amounts recorded in this table are preliminary estimates of fair value.  Additional adjustments to the purchase price allocation may be required.

MERGER AND ACQUISITION EXPENSE	Quarters Ended												Six months ended
	Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
By expense category:
Personnel severance/retention fees	$	(24	)		$	1,313			$	216			$	1,288			$	216
Professional services	599				852				2,946				1,451				4,226
Branch consolidation and other occupancy expenses	924				1,949				26				2,422				50
Client communications	126				251				4				377				70
Information/computer data services	532				1,417				466				1,949				506
Miscellaneous	255				1,031				227				1,737				465
Total merger and acquisition expense	$	2,412			$	6,813			$	3,885			$	9,224			$	5,533
By acquisition:
Siuslaw Financial Group	94				—				856				94				1,526
Starbuck Bancshares, Inc. (AmericanWest)	2,318				6,813				3,029				9,130				4,007
Total merger and acquisition expense	$	2,412			$	6,813			$	3,885			$	9,224			$	5,533

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Actual							Minimum to be categorized as "Adequately Capitalized"							Minimum to becategorized as"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF JUNE 30, 2016		Amount				Ratio			Amount				Ratio			Amount				Ratio
Banner Corporation-consolidated:
Total capital to risk-weighted assets		$	1,170,090			13.52	%		$	692,538			8.00	%		$	865,672			10.00	%
Tier 1 capital to risk-weighted assets		1,085,123				12.54	%		519,403				6.00	%		519,403				6.00	%
Tier 1 leverage capital to average assets		1,085,123				11.43	%		379,622				4.00	%		n/a				n/a
Common equity tier 1 capital to risk-weighted assets		1,025,640				11.85	%		389,552				4.50	%		n/a				n/a
Banner Bank:
Total capital to risk-weighted assets		1,055,434				12.48	%		676,515				8.00	%		845,644				10.00	%
Tier 1 capital to risk-weighted assets		972,695				11.50	%		507,386				6.00	%		676,515				8.00	%
Tier 1 leverage capital to average assets		972,695				10.56	%		368,422				4.00	%		460,527				5.00	%
Common equity tier 1 capital to risk-weighted assets		972,695				11.50	%		380,539				4.50	%		549,668				6.50	%
Islanders Bank:
Total capital to risk-weighted assets		39,344				19.94	%		15,799				8.00	%		19,749				10.00	%
Tier 1 capital to risk-weighted assets		37,116				18.79	%		11,850				6.00	%		15,799				8.00	%
Tier 1 leverage capital to average assets		37,116				13.39	%		11,087				4.00	%		13,859				5.00	%
Common equity tier 1 capital to risk-weighted assets		37,116				18.79	%		8,879				4.50	%		12,825				6.50	%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREAD	Quarter Ended
	June 30, 2016									March 31, 2016									June 30, 2015
	Average Balance			Interest and Dividends			Yield / Cost(3)			Average Balance			Interest and Dividends			Yield / Cost(3)			Average Balance			Interest and Dividends			Yield / Cost(3)
Interest-earning assets:
Mortgage loans	$	5,715,740		$	68,914		4.85	%		$	5,707,882		$	68,743		4.84	%		$	3,092,690		$	38,642		5.01	%
Commercial/agricultural loans	1,504,969			17,816			4.76	%		1,471,638			16,025			4.38	%		960,818			10,509			4.39	%
Consumer and other loans	140,355			2,205			6.32	%		141,361			2,190			6.23	%		128,040			1,927			6.04	%
Total loans(1)	7,361,064			88,935			4.86	%		7,320,881			86,958			4.78	%		4,181,548			51,078			4.90	%
Mortgage-backed securities	1,004,044			5,274			2.11	%		1,004,811			5,390			2.16	%		305,427			1,275			1.67	%
Other securities	450,528			2,931			2.62	%		427,496			2,772			2.61	%		260,351			1,603			2.47	%
Interest-bearing deposits with banks	95,668			101			0.42	%		103,775			101			0.39	%		159,191			109			0.27	%
FHLB stock	18,911			80			1.70	%		17,531			80			1.84	%		16,903			11			0.26	%
Total investment securities	1,569,151			8,386			2.15	%		1,553,613			8,343			2.16	%		741,872			2,998			1.62	%
Total interest-earning assets	8,930,215			97,321			4.38	%		8,874,494			95,301			4.32	%		4,923,420			54,076			4.41	%
Non-interest-earning assets	903,706									894,066									272,486
Total assets	$	9,833,921								$	9,768,560								$	5,195,906
Deposits:
Interest-bearing checking accounts	$	789,626		185			0.09	%		$	934,072		196			0.08	%		$	481,568		99			0.08	%
Savings accounts	1,329,104			431			0.13	%		1,307,369			423			0.13	%		988,991			366			0.15	%
Money market accounts	1,577,320			811			0.21	%		1,620,524			862			0.21	%		573,101			225			0.16	%
Certificates of deposit	1,244,796			1,344			0.43	%		1,328,741			1,465			0.44	%		771,153			1,078			0.56	%
Total interest-bearing deposits	4,940,846			2,771			0.23	%		5,190,706			2,946			0.23	%		2,814,813			1,768			0.25	%
Non-interest-bearing deposits	3,029,890			—			—	%		2,788,372			—			—	%		1,489,940			—			—	%
Total deposits	7,970,736			2,771			0.14	%		7,979,078			2,946			0.15	%		4,304,753			1,768			0.16	%
Other interest-bearing liabilities:
FHLB advances	214,290			339			0.64	%		169,204			279			0.66	%		192			3			6.27	%
Other borrowings	111,987			78			0.28	%		102,865			75			0.29	%		96,231			48			0.20	%
Junior subordinated debentures	140,212			985			2.83	%		140,212			958			2.75	%		131,964			800			2.43	%
Total borrowings	466,489			1,402			1.21	%		412,281			1,312			1.28	%		228,387			851			1.49	%
Total funding liabilities	8,437,225			4,173			0.20	%		8,391,359			4,258			0.20	%		4,533,140			2,619			0.23	%
Other non-interest-bearing liabilities(2)	62,858									63,014									2,966
Total liabilities	8,500,083									8,454,373									4,536,106
Shareholders' equity	1,333,838									1,314,187									659,800
Total liabilities and shareholders' equity	$	9,833,921								$	9,768,560								$	5,195,906
Net interest income/rate spread				$	93,148		4.18	%					$	91,043		4.12	%					$	51,457		4.18	%
Net interest margin							4.20	%								4.13	%								4.19	%
Additional Key Financial Ratios:
Return on average assets							0.86	%								0.73	%								1.02	%
Return on average equity							6.32	%								5.44	%								8.05	%
Average equity/average assets							13.56	%								13.45	%								12.70	%
Average interest-earning assets/average interest-bearing liabilities							165.15	%								158.39	%								161.78	%
Average interest-earning assets/average funding liabilities							105.84	%								105.76	%								108.61	%
Non-interest income/average assets							0.84	%								0.82	%								1.25	%
Non-interest expense/average assets							3.27	%								3.46	%								3.68	%
Efficiency ratio(4)							70.27	%								75.70	%								70.61	%

	(1	)	Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
	(2	)	Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
	(3	)	Yields and costs have not been adjusted for the effect of tax-exempt interest.
	(4	)	Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREAD						Six months ended
						June 30, 2016									June 30, 2015
						Average Balance			Interest and Dividends			Yield/Cost(3)			Average Balance			Interest and Dividends			Yield/Cost(3)
Interest-earning assets:
Mortgage loans						$	5,711,811		$	137,658		4.85	%		$	3,003,444		$	74,203		4.98	%
Commercial/agricultural loans						1,488,304			33,841			4.57	%		923,586			19,477			4.25	%
Consumer and other loans						140,858			4,394			6.27	%		124,593			3,763			6.09	%
Total loans(1)						7,340,973			175,893			4.82	%		4,051,623			97,443			4.85	%
Mortgage-backed securities						1,004,427			10,664			2.14	%		306,740			2,302			1.51	%
Other securities						439,012			5,702			2.61	%		263,058			3,220			2.47	%
Interest-bearing deposits with banks						99,721			202			0.41	%		125,384			162			0.26	%
FHLB stock						18,221			161			1.78	%		21,895			18			0.17	%
Total investment securities						1,561,381			16,729			2.15	%		717,077			5,702			1.60	%
Total interest-earning assets						8,902,354			192,622			4.35	%		4,768,700			103,145			4.36	%
Non-interest-earning assets						898,887									250,935
Total assets						$	9,801,241								$	5,019,635
Deposits:
Interest-bearing checking accounts						$	861,849		382			0.09	%		$	463,690		189			0.08	%
Savings accounts						1,318,236			853			0.13	%		959,585			710			0.15	%
Money market accounts						1,598,922			1,673			0.21	%		547,612			428			0.16	%
Certificates of deposit						1,286,769			2,809			0.44	%		770,270			2,174			0.57	%
Total interest-bearing deposits						5,065,776			5,717			0.23	%		2,741,157			3,501			0.26	%
Non-interest-bearing deposits						2,909,131			—			—	%		1,410,949			—			—	%
Total deposits						7,974,907			5,717			0.14	%		4,152,106			3,501			0.17	%
Other interest-bearing liabilities:
FHLB advances						191,747			618			0.65	%		8,920			20			0.45	%
Other borrowings						107,426			153			0.29	%		92,289			91			0.20	%
Junior subordinated debentures						140,212			1,944			2.79	%		129,048			1,541			2.41	%
Total borrowings						439,385			2,715			1.24	%		230,257			1,652			1.45	%
Total funding liabilities						8,414,292			8,432			0.20	%		4,382,363			5,153			0.24	%
Other non-interest-bearing liabilities(2)						62,936									3,021
Total liabilities						8,477,228									4,385,384
Shareholders' equity						1,324,013									634,251
Total liabilities and shareholders' equity						$	9,801,241								$	5,019,635
Net interest income/rate spread									$	184,190		4.15	%					$	97,992		4.12	%
Net interest margin												4.16	%								4.14	%
Additional Key Financial Ratios:
Return on average assets												0.79	%								1.02	%
Return on average equity												5.88	%								8.07	%
Average equity/average assets												13.51	%								12.64	%
Average interest-earning assets/average interest-bearing liabilities												161.71	%								160.49	%
Average interest-earning assets/average funding liabilities												105.80	%								108.82	%
Non-interest income/average assets												0.83	%								1.20	%
Non-interest expense/average assets												3.36	%								3.60	%
Efficiency ratio(4)												72.96	%								70.13	%
(1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due.  Amortization of net deferred loan fees/costs is included with interest on loans.
(2) Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3) Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
* Non-GAAP Financial Measures (unaudited)
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures.  Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers.  Where applicable, comparable earnings information using GAAP financial measures is also presented.
REVENUE FROM CORE OPERATIONS	Quarters Ended												Six months ended
	Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
Net interest income before provision for loan losses	$	93,148			$	91,043			$	51,457			$	184,190			$	97,992
Total non-interest income	20,537				19,959				16,141				40,497				29,838
Total GAAP revenue	113,685				111,002				67,598				224,687				127,830
Exclude net (gain) loss on sale of securities	380				(21		)		28				359				537
Exclude change in valuation of financial instruments carried at fair value	377				(29		)		(797		)		348				(1,847		)
Revenue from core operations (non-GAAP)	$	114,442			$	110,952			$	66,829			$	225,394			$	126,520

ACQUISITION ACCOUNTING IMPACT ON NET INTEREST MARGIN	Quarters Ended												Six months ended
	Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
Net interest income before provision for loan losses (GAAP)	$	93,148			$	91,043			$	51,457			$	184,190			$	97,992
Exclude discount accretion on purchased loans	(3,214		)		(1,689		)		(414		)		(4,903		)		(627		)
Exclude premium amortization on acquired certificates of deposit	(460		)		(461		)		(62		)		(921		)		(123		)
Net interest income before discount accretion (non-GAAP)	$	89,474			$	88,893			$	50,981			$	178,366			$	97,242
Average interest-earning assets (GAAP)	$	8,930,215			$	8,874,494			$	4,923,420			$	8,902,354			$	4,768,700
Exclude average net loan discount on acquired loans	41,246				43,347				4,860				42,296				3,209
Average interest-earning assets before acquired loan discount (non-GAAP)	$	8,971,461			$	8,917,841			$	4,928,280			$	8,944,650			$	4,771,909
Net interest margin (GAAP)	4.20		%		4.13		%		4.19		%		4.16		%		4.14		%
Exclude impact on net interest margin from discount accretion	(0.14		)		(0.08		)		(0.03		)		(0.11		)		(0.03		)
Exclude impact on net interest margin from CD premium amortization	(0.02		)		(0.02		)		—				(0.02		)		—
Exclude impact of net loan discount on average earning assets	(0.03		)		(0.02		)		(0.01		)		(0.02		)		—
Net margin before discount accretion (non-GAAP)	4.01		%		4.01		%		4.15		%		4.01		%		4.11		%

NON-INTEREST INCOME/EXPENSE FROM CORE OPERATIONS	Quarters Ended												Six months ended
	Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
Total non-interest income (GAAP)	$	20,537			$	19,959			$	16,141			$	40,497			$	29,838
Exclude net (gain) loss on sale of securities	380				(21		)		28				359				537
Exclude change in valuation of financial instruments carried at fair value	377				(29		)		(797		)		348				(1,847		)
Non-interest income from core operations (non-GAAP)	$	21,294			$	19,909			$	15,372			$	41,204			$	28,528
Total non-interest expense (GAAP)	$	79,887			$	84,034			$	47,734			$	163,921			$	89,649
Exclude acquisition related costs	(2,412		)		(6,813		)		(3,885		)		(9,224		)		(5,533		)
Non-interest expense from core operations (non-GAAP)	$	77,475			$	77,221			$	43,849			$	154,697			$	84,116

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands except shares and per share data)
		Quarters Ended												Six months ended
		Jun 30, 2016				Mar 31, 2016				Jun 30, 2015				Jun 30, 2016				Jun 30, 2015
EARNINGS FROM CORE OPERATIONS
Net income (GAAP)		$	20,957			$	17,774			$	13,249			$	38,731			$	25,383
Exclude net (gain) loss on sale of securities		380				(21		)		28				359				537
Exclude change in valuation of financial instruments carried at fair value		377				(29		)		(797		)		348				(1,847		)
Exclude acquisition-related costs		2,412				6,813				3,885				9,224				5,533
Exclude related tax expense (benefit)		(1,141		)		(2,417		)		(954		)		(3,557		)		(1,074		)
Total earnings from core operations (non-GAAP)		$	22,985			$	22,120			$	15,411			$	45,105			$	28,532
Diluted earnings per share (GAAP)		$	0.61			$	0.52			$	0.64			$	1.14			$	1.25
Diluted core earnings per share (non-GAAP)		$	0.67			$	0.65			$	0.74			$	1.32			$	1.41
NET EFFECT OF ACQUISITION-RELATED COSTS ON EARNINGS
Acquisition-related costs		$	(2,412	)		$	(6,813	)		$	(3,885	)		$	(9,224	)		$	(5,533	)
Related tax benefit		868				2,435				1,231				3,303				1,545
Total net effect of acquisition-related costs on earnings		$	(1,544	)		$	(4,378	)		$	(2,654	)		$	(5,921	)		$	(3,988	)
Diluted weighted average shares outstanding		34,117,151				34,103,727				20,789,533				34,090,647				20,301,448
Total net effect of acquisition-related costs on diluted weighted average earnings per share		$	(0.05	)		$	(0.13	)		$	(0.13	)		$	(0.17	)		$	(0.20	)

		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015
TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS
Shareholders' equity (GAAP)		$	1,338,517			$	1,320,155			$	1,300,059			$	660,650
Exclude goodwill and other intangible assets, net		278,307				280,409				285,210				26,891
Tangible common shareholders' equity (non-GAAP)		$	1,060,210			$	1,039,746			$	1,014,849			$	633,759
Total assets (GAAP)		$	9,916,205			$	9,745,594			$	9,796,298			$	5,194,258
Exclude goodwill and other intangible assets, net		278,307				280,409				285,210				26,891
Total tangible assets (non-GAAP)		$	9,637,898			$	9,465,185			$	9,511,088			$	5,167,367
Tangible common shareholders' equity to tangible assets (non-GAAP)		11.00		%		10.98		%		10.67		%		12.26		%
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
Tangible common shareholders' equity		$	1,060,210			$	1,039,746			$	1,014,849			$	633,759
Common shares outstanding at end of period		34,350,560				34,221,451				34,242,255				20,970,681
Common shareholders' equity (book value) per share (GAAP)		$	38.97			$	38.58			$	37.97			$	31.50
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)		$	30.86			$	30.38			$	29.64			$	30.22

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Jun 30, 2016				Mar 31, 2016				Dec 31, 2015				Jun 30, 2015
RATIO OF ADJUSTED ALLOWANCE FOR LOAN LOSSES TO ADJUSTED LOANS
Loans receivable (GAAP)		$	7,325,925			$	7,185,999			$	7,314,504			4,245,322
Net loan discount on acquired loans		38,838				42,302				43,657				4,618
Adjusted loans (non-GAAP)		$	7,364,763			$	7,228,301			$	7,358,161			4,249,940
Allowance for loan losses (GAAP)		$	81,318			$	78,197			$	78,008			77,329
Net loan discount on acquired loans		38,838				42,302				43,657				4,618
Adjusted allowance for loan losses (non-GAAP)		$	120,156			$	120,499			$	121,665			81,947
Adjusted allowance for loan losses / Adjusted loans (non-GAAP)		1.63		%		1.67		%		1.65		%		1.93	%

 

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

Source: Banner Corporation