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Form 8-K BANNER CORP For: Apr 25

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April 26, 2016 11:07 AM EDT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
 
PURSUANT TO SECTION 13 OR 15 (d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
 
Date of Report (Date of earliest event reported): April 25, 2016
 
 
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)
(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))
 
 
 
 

 
Item 2.02  Results of Operations and Financial Condition

On April 25, 2016, Banner Corporation issued its earnings release for the quarter ended March 31, 2016.  A copy of the earnings release is furnished herewith as Exhibit 99.1, which is incorporated herein by reference.

Item 9.01  Financial Statements and Exhibits

(d)           Exhibits

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

99.1           Press Release of Banner Corporation dated April 25, 2016.

 
 
 
 

 
 
 
 

SIGNATURES

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

 
BANNER CORPORATION
   
   
   
Date: April 26, 2016
By: /s/ Lloyd W. Baker                                      
 
       Lloyd W. Baker
 
       Executive Vice President and
         Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 99.1
 
Contact: Mark J. grescovich,
President & CEO
Lloyd W. Baker, CFO
(509) 527-3636
   
News Release

 
 
Banner Corporation Earns $17.8 Million, or $0.52 per Diluted Share, in the First Quarter of 2016;
First Quarter Highlighted by Net Interest Margin Expansion

Walla Walla, WA - April 25, 2016 - Banner Corporation (NASDAQ GSM: BANR), the parent company of Banner Bank and Islanders Bank, today reported strong earnings growth propelled by growth from recent acquisitions, organic loan and core deposit growth and net interest margin expansion.  Net income in the first quarter of 2016 increased to $17.8 million, or $0.52 per diluted share, compared to $6.9 million, or $0.20 per diluted share, in the preceding quarter and $12.1 million, or $0.61 per diluted share, in the first quarter a year ago.  The current 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, and the preceding quarter results were impacted by $18.4 million of acquisition-related expenses which, net of tax benefit, reduced net income by $0.37 per diluted share.
 
“Banner’s first quarter performance continued to reflect the success of our client acquisition strategies, which helped us realize strong operating results and increased our net interest margin,” stated Mark J. Grescovich, President and Chief Executive Officer.  “We are continuing to benefit from the acquisition and integration of AmericanWest Bank, including the successful completion of our core system conversion during the recent quarter.  Although there remains work to be done to fully realize the expected operating synergies, we have made solid progress on integration and can clearly observe the positive contributions from this merger in our first quarter results.  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.”

At March 31, 2016, Banner Corporation had $9.75 billion in assets, $7.11 billion in net loans and $8.03 billion in deposits. It operates 190 branch offices located in nine of the top 20 largest western Metropolitan Statistical Areas by population.  As Banner Bank deploys its super community bank business model across five western states, the combined bank is benefiting from its increased scale and diversified geographic footprint with important economic drivers and significant growth opportunities.

First Quarter 2016 Highlights
 
•  
Net income increased 47% to $17.8 million, compared to $12.1 million in the first quarter of 2015.
•  
Acquisition-related expenses were $6.8 million which, net of tax benefit, reduced net income by $0.13 per diluted share for the quarter ended March 31, 2016.
•  
Revenues from core operations* increased 86% to $111.0 million, compared to $59.7 million in the first quarter a year ago.
•  
Net interest margin expanded to 4.13% for the current quarter, compared to 4.05% in the fourth quarter of 2015 and 4.09% a year ago.
•  
Excluding acquisition accounting adjustments, the contractual net interest margin increased to 4.01% compared to 3.89% in the preceding quarter.
•  
Deposit fees and other service charges were $11.8 million, compared to $13.2 million in the preceding quarter and $8.1 million a year ago.
•  
Revenues from mortgage banking operations were $5.6 million, including $725,000 related to sale of multifamily loans, compared to $4.5 million in the preceding quarter and $4.1 million a year ago.
•  
Net loans increased by $3.08 billion, or 76% year-over-year.
•  
Total deposits increased 86% to $8.03 billion compared to a year ago.
•  
Core deposits increased by $3.20 billion, or 90%, year-over-year.
•  
Core deposits represented 84% of total deposits at March 31, 2016.
•  
Quarterly dividend to shareholders increased 17% to $0.21 per share.
•  
Common stockholders' tangible equity per share* increased to $30.38 at March 31, 2016, compared to $29.64 at the preceding quarter end and $29.75 a year ago.
•  
The ratio of tangible common stockholders' equity to tangible assets* remained strong at 10.98% at March 31, 2016.
 
 
 
 
BANR - First Quarter 2016 Results
April 25, 2016
Page 2

 
*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) 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 first quarter of 2016, post-closing adjustments reduced goodwill by $2.9 million.

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 these acquisitions and merger related expenses, see the tables under Business Combinations on pages 12 and 13 of this press release.

Income Statement Review

Banner’s first quarter net interest income, before the provision for loan losses, decreased slightly to $91.0 million, compared to $92.1 million in the preceding quarter, as a result of significant sales of multifamily loans acquired through the AmericanWest merger as well as expected seasonal factors, including the shorter quarter, and a $1.0 million reduction in the contribution from acquisition accounting.  Nonetheless, the first quarter 2016 net interest income increased 96% compared to $46.5 million in the first quarter a year ago, largely reflecting the acquisitions of AmericanWest Bank and Siuslaw and continued client acquisition.

“Our net interest margin expanded eight basis points compared to the preceding quarter and four basis points compared to a year ago, importantly as a result of increased contractual yields for both loans and investment securities, reflecting changes in the mix of assets and the increase in short-term market interest rates,” said Grescovich.  “By contrast, the accretion impact of acquisition accounting on the net interest margin declined by four basis points compared to the preceding quarter.”  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 4.13% for the first quarter of 2016, which included eight basis points as a result of accretion from acquisition accounting loan discounts, two basis points from the amortization of deposit premiums and two 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 4.05% in the preceding quarter and 4.09% in the first quarter a year ago.  Excluding the effects of acquisition accounting, the contractual net interest margin increased to 4.01% compared to 3.89% in the preceding quarter although, primarily as a result of the acquisition of AmericanWest Bank, the contractual net interest margin decreased slightly compared to 4.07% in the first quarter a year ago reflecting a proportionately larger portfolio of investment securities.
 
Average interest-earning asset yields increased eight basis points to 4.32% compared to 4.24% for the preceding quarter and increased one basis point from 4.31% for the first quarter a year ago.  Loan yields increased six basis points compared to the preceding quarter and decreased two basis points from the first quarter a year ago.  The accretion of discounts and related balance sheet impact on the loans acquired through the acquisitions added 12 basis points to reported loan yields for the quarter.  Deposit costs remained unchanged compared to the preceding quarter and decreased three basis points compared to the first 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 first quarter 2016.  The total cost of funds remained unchanged at 0.20% during the first quarter compared to the preceding quarter and declined four basis points compared to 0.24% for the first quarter a year ago.
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 3
 
 
“Home purchase activity remains robust in our markets, and revenues from mortgage banking were strong, reflecting Banner’s increased market presence and our investment in this business line,” said Grescovich.  “In addition, our multifamily origination unit that was acquired in the merger with AmericanWest Bank produced $725,000 of gains on the sale of loans that were originated subsequent to the acquisition date.”  Mortgage banking revenues increased 26% to $5.6 million in the first quarter compared to $4.5 million in the preceding quarter and increased 37% compared to $4.1 million in the first quarter of 2015.  Home purchase activity accounted for 61% of first quarter one- to four-family mortgage banking loan originations.
 
Deposit fees and other service charges contributed $11.8 million of first quarter revenues, compared to $13.2 million in the preceding quarter and increased 45% compared to $8.1 million in the first quarter a year ago.  The decline compared to the preceding quarter reflects normal seasonal patterns as well as one-time fee waivers in connection with the systems conversion.
 
Revenues from core operations* (revenues excluding gains and losses on the sale of securities and net change in valuation of financial instruments) were $111.0 million in the first quarter ended March 31, 2016, compared to $112.0 million in the preceding quarter and increased 86% compared to $59.7 million in the first quarter of 2015.  Total revenues were $111.0 million for the quarter ended March 31, 2016, compared to $110.5 million in the preceding quarter and $60.2 million in the first quarter a year ago.
 
Banner’s first quarter 2016 results included a $29,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, as well as a $21,000 net gain on the sale of securities.  In the preceding quarter, results included a $1.5 million net loss for fair value adjustments, as well as a $3,000 net loss on the sale of securities and in the first quarter a year ago results included a $1.1 million net gain for fair value adjustments, as well as a $510,000 loss on the sale of securities.
 
Banner’s 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 $20.0 million in the first quarter of 2016, compared to $18.4 million in the fourth quarter of 2015 and $13.7 million in the first 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 $19.9 million for the first quarter of 2016, which was unchanged compared to the preceding quarter.  Non-interest income from core operations* was $13.2 million for the first quarter a year ago.
 
Total non-interest expenses were $84.0 million in the first quarter of 2016, compared to $100.3 million in the preceding quarter and $41.9 million in the first 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 acquired in the AmericanWest Bank merger on October 1, 2015 and the ten Siuslaw branches acquired in March 2015, as well as generally increased compensation, occupancy and payment and card processing services reflecting increased transaction volume.  There were $6.8 million in acquisition-related expenses in the current quarter compared to $18.4 million in the preceding quarter and $1.6 million in the first quarter a year ago.
 
For the first quarter of 2016, Banner recorded $9.2 million in state and federal income tax expense for an effective tax rate of 34.1%, which reflects normal statutory tax rates increased by the effect of certain non-deductible merger expenses and reduced by the effect of tax-exempt income and certain tax credits.
 
Balance Sheet Review
 
Largely as a result of the AmericanWest Bank acquisition but also reflecting organic growth, total assets increased by 87% to $9.75 billion at March 31, 2016, compared to $5.21 billion a year ago.  Total assets were $9.80 billion at December 31, 2015.  The total of securities and interest-bearing deposits held at other banks was $1.59 billion at March 31, 2016, compared to $1.54 billion at December 31, 2015 and $782.4 million a year ago.  Compared to a year earlier, the increase in the securities portfolio is primarily a result of positions held by AmericanWest at the time of the merger.  The average effective duration of Banner's securities portfolio was approximately 2.9 years at March 31, 2016.
 
“Net loans increased by $3.08 billion, or 76%, year-over-year due to the AmericanWest Bank acquisition and strong organic growth.  Net loans decreased compared to the preceding quarter end, largely as a result of the sale of $139.1 million of multifamily loans and expected seasonal reductions in agricultural loans.  Nevertheless, loan production remained solid, as did the regional economy, and we continue to see significant potential for growth in our loan origination pipelines,” said Grescovich.
 
Net loans increased 76% to $7.11 billion at March 31, 2016, compared to $4.03 billion a year ago.  Net loans were $7.24 billion at December 31, 2015.  Reflecting the recent loan sales, commercial real estate and multifamily real estate loans decreased 4% to $3.44 billion at March 31, 2016, compared to $3.57 billion at December 31, 2015, but increased 94% compared to $1.77 billion a year ago.  Commercial business loans increased 1% to $1.22 billion at March 31, 2016, compared to $1.21 billion three months earlier and increased 58% compared to $776.6 million a year ago.  Agricultural business loans decreased 10% to $340.4 million at March 31, 2016, compared to $376.5 million three months earlier but increased 63% compared to $208.6 million a year ago.  Total construction, land and land development loans increased 10% to $632.1 million at March 31, 2016, compared to $574.4 million at December 31, 2015, and increased 47% compared to $431.0 million a year earlier.
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 4
 
 
Banner’s total deposits were $8.03 billion at March 31, 2016, a slight decline compared to $8.06 billion at December 31, 2015 but an increase of 86% compared to $4.32 billion a year ago.  In connection with certain product changes during the first quarter, Banner converted approximately $420 million of former AmericanWest Bank interest-bearing deposits to non-interest-bearing deposits.  As a result of the product changes, non-interest-bearing account balances increased 16% to $3.04 billion at March 31, 2016, compared to $2.62 billion three months earlier and reflecting the acquisition and organic account growth increased 102% compared to $1.50 billion a year ago.  Also as a result of the product changes, interest-bearing transaction and savings accounts decreased 9% to $3.71 billion at March 31, 2016, compared to $4.08 billion three months earlier but increased 82% compared to $2.04 billion a year ago.  Certificates of deposit decreased 5% to $1.29 billion at March 31, 2016, compared to $1.35 billion at December 31, 2015, but increased 66% compared to $778.0 million a year earlier.  Brokered deposits totaled $135.6 million at March 31, 2016, compared to $162.9 million at December 31, 2015 and $4.8 million a year ago.
 
Core deposits represented 84% of total deposits at March 31, 2016, compared to 82% of total deposits a year earlier.  The cost of deposits was 0.15% for the quarter ended March 31, 2016, the same as in the preceding quarter, and declined three basis points from 0.18% for the quarter ended March 31, 2015.
 
At March 31, 2016, total common stockholders' equity was $1.32 billion, or $38.58 per share, compared to $1.30 billion at December 31, 2015 and $651.3 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 March 31, 2016, tangible common stockholders' equity*, which excludes goodwill and other intangible assets, was $1.04 billion, or 10.98% of tangible assets*, compared to $1.01 billion, or 10.67% of tangible assets, at December 31, 2015, and $624.1 million, or 12.04% of tangible assets, a year ago.  Banner's tangible book value per share* increased to $30.38 at March 31, 2016, compared to $29.75 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 March 31, 2016, Banner Corporation's common equity Tier 1 capital ratio was 11.93%, its Tier 1 leverage capital to average assets ratio was 11.28% and its total capital to risk-weighted assets ratio was 13.58%.
 
Credit Quality
 
“Our credit quality metrics continue to reflect our moderate risk profile and our reserve levels remain strong.  As a result, no provision for loan losses was required again during the current quarter,” said Grescovich.  “However, as we continue to accrete the acquisition accounting discounts for the loans acquired through last year’s acquisitions and experience further growth in the loan portfolio, we expect to increase the allowance for loan losses through renewed loan loss provisioning at some point before year-end 2016.”
 
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 $78.2 million at March 31, 2016, or 1.09% of total loans outstanding and 501% of non-performing loans compared to $75.4 million at March 31, 2015, or 1.83% of total loans outstanding and 305% of non-performing loans.  Banner had net recoveries of $189,000 in the first quarter compared to net recoveries of $688,000 in the fourth quarter of 2015 and net charge-offs of $542,000 in the first quarter a year ago.  If the allowance for loan losses and loans were grossed up for the remaining loan discount the adjusted allowance for loan losses to adjusted loans would have been 1.67% as of March 31, 2016.  Non-performing loans were $15.6 million at March 31, 2016, compared to $15.2 million at December 31, 2015, and $24.7 million a year ago.  Real estate owned and other repossessed assets decreased to $7.2 million at March 31, 2016, compared to $11.6 million at December 31, 2015, but increased compared to $4.9 million a year ago, primarily due to additional real estate owned acquired in the mergers.
 
Banner's non-performing assets were 0.24% of total assets at March 31, 2016, compared to 0.28% at December 31, 2015 and 0.57% a year ago.  Non-performing assets were $23.0 million at March 31, 2016, compared to $27.1 million at December 31, 2015 and $29.7 million a year ago.  In addition to non-performing assets, purchased credit-impaired loans decreased to $53.3 million at March 31, 2016 compared to $58.6 million at December 31, 2015 and increased from $5.7 million a year ago.
 
Conference Call
 
Banner will host a conference call on Tuesday, April 26, 2016, at 8:00 a.m. PDT, to discuss its first quarter results.  To listen to the call on-line, go to www.bannerbank.com.  Investment professionals are invited to dial (866) 235-9915 to participate in the call.  A replay will be available for one week at (877) 344-7529 using access code 10093182, or at www.bannerbank.com.
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 5
 
 
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 $9.7 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.
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 6
 
 
RESULTS OF OPERATIONS
  
Quarters Ended
(in thousands except shares and per share data)
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
             
INTEREST INCOME:
            
Loans receivable
  
$
86,958
    
$
88,100
    
$
46,365
  
Mortgage-backed securities
  
5,390
    
5,440
    
1,027
  
Securities and cash equivalents
  
2,953
    
2,955
    
1,677
  
   
95,301
    
96,495
    
49,069
  
INTEREST EXPENSE:
            
Deposits
  
2,946
    
3,146
    
1,733
  
Federal Home Loan Bank advances
  
279
    
287
    
17
  
Other borrowings
  
75
    
73
    
43
  
Junior subordinated debentures
  
958
    
890
    
740
  
   
4,258
    
4,396
    
2,533
  
Net interest income before provision for loan losses
  
91,043
    
92,099
    
46,536
  
PROVISION FOR LOAN LOSSES
  
—
    
—
    
—
  
Net interest income
  
91,043
    
92,099
    
46,536
  
NON-INTEREST INCOME:
            
Deposit fees and other service charges
  
11,818
    
13,172
    
8,126
  
Mortgage banking operations
  
5,643
    
4,482
    
4,109
  
Bank owned life insurance
  
1,185
    
1,056
    
438
  
Miscellaneous
  
1,263
    
1,196
    
483
  
   
19,909
    
19,906
    
13,156
  
Net gain (loss) on sale of securities
  
21
    
(3
)
  
(510
)
Net change in valuation of financial instruments carried at fair value
  
29
    
(1,547
)
  
1,050
  
Total non-interest income
  
19,959
    
18,356
    
13,696
  
NON-INTEREST EXPENSE:
            
Salary and employee benefits
  
46,564
    
49,225
    
24,287
  
Less capitalized loan origination costs
  
(4,250
)
  
(4,007
)
  
(2,838
)
Occupancy and equipment
  
10,388
    
11,533
    
6,006
  
Information / computer data services
  
4,920
    
5,365
    
2,253
  
Payment and card processing services
  
4,785
    
5,504
    
3,016
  
Professional services
  
2,614
    
2,341
    
814
  
Advertising and marketing
  
1,734
    
1,882
    
1,610
  
Deposit insurance
  
1,338
    
1,284
    
567
  
State/municipal business and use taxes
  
838
    
505
    
453
  
Real estate operations
  
397
    
207
    
24
  
Amortization of core deposit intangibles
  
1,808
    
1,896
    
616
  
Miscellaneous
  
6,085
    
6,150
    
3,458
  
   
77,221
    
81,885
    
40,266
  
Acquisition related costs
  
6,813
    
18,369
    
1,648
  
Total non-interest expense
  
84,034
    
100,254
    
41,914
  
Income before provision for income taxes
  
26,968
    
10,201
    
18,318
  
PROVISION FOR INCOME TAXES
  
9,194
    
3,308
    
6,184
  
NET INCOME
  
$
17,774
    
$
6,893
    
$
12,134
  
             
Earnings per share available to common shareholders:
            
Basic
  
$
0.52
    
$
0.20
    
$
0.61
  
Diluted
  
$
0.52
    
$
0.20
    
$
0.61
  
Cumulative dividends declared per common share
  
$
0.21
    
$
0.18
    
$
0.18
  
             
Weighted average common shares outstanding:
            
Basic
  
34,023,800
    
33,842,350
    
19,760,645
  
Diluted
  
34,103,727
    
33,934,426
    
19,845,019
  
                   
Increase (decrease)  in common shares outstanding
  
(20,804
)
  
13,279,955
    
1,405,093
  
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 7
 
FINANCIAL  CONDITION
              
Percentage Change
(in thousands except shares and per share data)
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
  
Prior Qtr
  
Prior Yr Qtr
                     
ASSETS
                    
Cash and due from banks
  
$
153,706
    
$
117,657
    
$
83,401
    
30.6
  %
  
84.3
  %
Interest-bearing deposits
  
106,864
    
144,260
    
215,114
    
(25.9
) %
  
(50.3
) %
Total cash and cash equivalents
  
260,570
    
261,917
    
298,515
    
(0.5
) %
  
(12.7
) %
Securities - trading
  
33,994
    
34,134
    
38,074
    
(0.4
) %
  
(10.7
) %
Securities - available for sale
  
1,199,279
    
1,138,573
    
395,607
    
5.3
  %
  
203.1
  %
Securities - held to maturity
  
246,320
    
220,666
    
133,649
    
11.6
  %
  
84.3
  %
Federal Home Loan Bank stock
  
13,347
    
16,057
    
25,544
    
(16.9
) %
  
(47.7
) %
Loans held for sale
  
47,523
    
44,712
    
9,419
    
6.3
  %
  
404.5
  %
Loans receivable
  
7,185,999
    
7,314,504
    
4,105,399
    
(1.8
) %
  
75.0
  %
Allowance for loan losses
  
(78,197
)
  
(78,008
)
  
(75,365
)
  
0.2
  %
  
3.8
  %
Net loans
  
7,107,802
    
7,236,496
    
4,030,034
    
(1.8
) %
  
76.4
  %
Accrued interest receivable
  
30,674
    
29,627
    
16,873
    
3.5
  %
  
81.8
  %
Real estate owned held for sale, net
  
7,207
    
11,627
    
4,922
    
(38.0
) %
  
46.4
  %
Property and equipment, net
  
168,807
    
167,604
    
98,728
    
0.7
  %
  
71.0
  %
Goodwill
  
244,811
    
247,738
    
21,148
    
(1.2
) %
    nm
 
Other intangibles, net
  
35,598
    
37,472
    
6,110
    
(5.0
) %
  
482.6
  %
Bank-owned life insurance
  
156,928
    
156,865
    
71,290
    
—
  %
  
120.1
  %
Other assets
  
192,734
    
192,810
    
61,459
    
—
  %
  
213.6
  %
Total assets
  
$
9,745,594
    
$
9,796,298
    
$
5,211,372
    
(0.5
) %
  
87.0
  %
                     
LIABILITIES
                    
Deposits:
                    
Non-interest-bearing
  
$
3,036,330
    
$
2,619,618
    
$
1,504,768
    
15.9
  %
  
101.8
  %
Interest-bearing transaction and savings accounts
  
3,705,658
    
4,081,580
    
2,036,600
    
(9.2
) %
  
82.0
  %
Interest-bearing certificates
  
1,287,873
    
1,353,870
    
778,049
    
(4.9
) %
  
65.5
  %
Total deposits
  
8,029,861
    
8,055,068
    
4,319,417
    
(0.3
) %
  
85.9
  %
Advances from Federal Home Loan Bank at fair value
  
75,400
    
133,381
    
250
    
(43.5
) %
  
nm
Customer repurchase agreements and other borrowings
  
106,132
    
98,325
    
97,020
    
7.9
  %
  
9.4
  %
Junior subordinated debentures at fair value
  
92,879
    
92,480
    
84,326
    
0.4
  %
  
10.1
  %
Accrued expenses and other liabilities
  
81,485
    
76,511
    
38,164
    
6.5
  %
  
113.5
  %
Deferred compensation
  
39,682
    
40,474
    
20,882
    
(2.0
) %
  
90.0
  %
Total liabilities
  
8,425,439
    
8,496,239
    
4,560,059
    
(0.8
) %
  
84.8
  %
                     
SHAREHOLDERS' EQUITY
                    
Common stock
  
1,262,050
    
1,261,174
    
627,553
    
0.1
  %
  
101.1
  %
Retained earnings
  
50,230
    
39,615
    
22,623
    
26.8
  %
  
122.0
  %
Other components of shareholders' equity
  
7,875
    
(730
)
  
1,137
    
nm
  
592.6
  %
Total shareholders' equity
  
1,320,155
    
1,300,059
    
651,313
    
1.5
  %
  
102.7
  %
Total liabilities and shareholders' equity
  
$
9,745,594
    
$
9,796,298
    
$
5,211,372
    
(0.5
) %
  
87.0
  %
                     
Common Shares Issued:
                    
Shares outstanding at end of period
  
34,221,451
    
34,242,255
    
20,976,641
          
Common shareholders' equity per share (1)
  
$
38.58
    
$
37.97
    
$
31.05
          
Common shareholders' tangible equity per share (1) (2)
  
$
30.38
    
$
29.64
    
$
29.75
          
Common shareholders' tangible equity to tangible assets (2)
  
10.98
%
  
10.67
%
  
12.04
%
        
Consolidated Tier 1 leverage capital ratio
  
11.28
%
  
11.06
%
  
14.67
%
        

(1)
Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2)
Common shareholders' tangible equity excludes goodwill and other intangible assets.  Tangible assets exclude goodwill and other intangible assets.  These ratios represent non-GAAP financial measures.  See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 8
 
ADDITIONAL FINANCIAL INFORMATION
                    
(dollars in thousands)
                    
               
Percentage Change
LOANS
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
  
Prior Qtr
  
Prior Yr
                     
Commercial real estate:
                    
Owner occupied
  
$
1,328,034
    
$
1,327,807
    
$
627,531
    
—
%
  
111.6
%
Investment properties
  
1,805,243
    
1,765,353
    
936,693
    
2.3
%
  
92.7
%
Multifamily real estate
  
307,019
    
472,976
    
208,687
    
(35.1
)%
  
47.1
%
Commercial construction
  
87,711
    
72,103
    
30,434
    
21.6
%
  
188.2
%
Multifamily construction
  
79,737
    
63,846
    
56,201
    
24.9
%
  
41.9
%
One- to four-family construction
  
297,348
    
278,469
    
228,224
    
6.8
%
  
30.3
%
Land and land development:
                    
Residential
  
142,841
    
126,773
    
98,930
    
12.7
%
  
44.4
%
Commercial
  
24,493
    
33,179
    
17,174
    
(26.2
)%
  
42.6
%
Commercial business
  
1,224,915
    
1,207,944
    
776,579
    
1.4
%
  
57.7
%
Agricultural business including secured by farmland
  
340,350
    
376,531
    
208,635
    
(9.6
)%
  
63.1
%
One- to four-family real estate
  
910,719
    
952,633
    
543,004
    
(4.4
)%
  
67.7
%
Consumer:
                    
Consumer secured by one- to four-family real estate
  
481,590
    
478,420
    
233,643
    
0.7
%
  
106.1
%
Consumer-other
  
155,999
    
158,470
    
139,664
    
(1.6
)%
  
11.7
%
 
Total loans outstanding
  
$
7,185,999
    
$
7,314,504
    
$
4,105,399
    
(1.8
)%
  
75.0
%
 
Restructured loans performing under their restructured terms
  
$
19,450
    
$
21,777
    
$
27,558
          
 
Loans 30 - 89 days past due and on accrual
  
$
28,264
    
$
18,834
    
$
8,157
          
 
Total delinquent loans (including loans on non-accrual), net(1)
  
$
43,986
    
$
30,994
    
$
20,822
          
 
Total delinquent loans  /  Total loans outstanding
  
0.61
%
  
0.42
%
  
0.51
%
        
 
Purchased credit-impaired loans, net
  
$
53,271
    
$
58,555
    
$
5,674
          
 

      (1) Delinquent loans include $4.9 million of delinquent purchased credit-impaired loans at March 31, 2015 compared to $6.3 million at December 31, 2015 and $1.1 million at March  31, 2015.
 
LOANS BY GEOGRAPHIC LOCATION
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
   
Amount
  
Percentage
  
Amount
  
Percentage
  
Amount
  
Percentage
                         
Washington
  
$
3,333,912
    
46.4%
  
$
3,343,112
    
45.7%
  
$
2,398,848
    
58.5%
Oregon
  
1,420,749
    
19.8%
  
1,446,531
    
19.8%
  
1,088,596
    
26.5%
California
  
1,173,203
    
16.3%
  
1,234,016
    
16.9%
  
119,805
    
2.9%
Idaho
  
493,905
    
6.9%
  
496,870
    
6.8%
  
309,948
    
7.5%
Utah
  
289,082
    
4.0%
  
325,011
    
4.4%
  
4,490
    
0.1%
Other
  
475,148
    
6.6%
  
468,964
    
6.4%
  
183,712
    
4.5%
Total loans
  
$
7,185,999
    
100.0%
  
$
7,314,504
    
100.0%
  
$
4,105,399
    
100.0%
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 9

 
ADDITIONAL FINANCIAL INFORMATION
            
(dollars in thousands)
            
   
  Quarters Ended
CHANGE IN THE
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
ALLOWANCE FOR LOAN LOSSES
            
Balance, beginning of period
  
$
78,008
    
$
77,320
    
$
75,907
  
 
Provision for loan losses
  
—
    
—
    
—
  
 
Recoveries of loans previously charged off:
            
Commercial real estate
  
38
    
233
    
14
  
Construction and land
  
471
    
578
    
108
  
One- to four-family real estate
  
12
    
631
    
6
  
Commercial business
  
720
    
143
    
178
  
Agricultural business, including secured by farmland
  
17
    
261
    
295
  
Consumer
  
207
    
197
    
46
  
   
1,465
    
2,043
    
647
  
Loans charged off:
            
Commercial real estate
  
(180
)
  
(537
)
  
—
  
One- to four-family real estate
  
—
    
(292
)
  
(75
)
Commercial business
  
(139
)
  
—
    
(107
)
Agricultural business, including secured by farmland
  
(567
)
  
(161
)
  
(818
)
Consumer
  
(390
)
  
(365
)
  
(189
)
   
(1,276
)
  
(1,355
)
  
(1,189
)
Net (charge-offs) recoveries
  
189
    
688
    
(542
)
 
Balance, end of period
  
$
78,197
    
$
78,008
    
$
75,365
  
 
Net (charge-offs) recoveries / Average loans outstanding
  
0.003
%
  
0.009
%
  
(0.014
)%
 
 
 
ALLOCATION OF
            
ALLOWANCE FOR LOAN LOSSES
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
Specific or allocated loss allowance:
            
Commercial real estate
  
$
19,732
    
$
20,716
    
$
19,103
  
Multifamily real estate
  
2,853
    
4,195
    
4,401
  
Construction and land
  
29,318
    
27,131
    
24,398
  
One- to four-family real estate
  
2,170
    
4,732
    
8,141
  
Commercial business
  
15,118
    
13,856
    
12,892
  
Agricultural business, including secured by farmland
  
4,282
    
3,645
    
3,732
  
Consumer
  
3,541
    
902
    
585
  
Total allocated
  
77,014
    
75,177
    
73,252
  
Unallocated
  
1,183
    
2,831
    
2,113
  
Total allowance for loan losses
  
$
78,197
    
$
78,008
    
$
75,365
  
 
Allowance for loan losses / Total loans outstanding
  
1.09
%
  
1.07
%
  
1.83
%
 
Allowance for loan losses / Non-performing loans
  
501
%
  
512
%
  
305
%
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 10


 
ADDITIONAL FINANCIAL INFORMATION
          
(dollars in thousands)
          
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
NON-PERFORMING ASSETS
          
Loans on non-accrual status:
          
Secured by real estate:
          
Commercial
$
4,145
    
$
3,751
    
$
4,141
  
Multifamily
—
    
—
    
578
  
Construction and land
2,250
    
2,260
    
7,523
  
One- to four-family
4,803
    
4,700
    
7,111
  
Commercial business
1,558
    
2,159
    
418
  
Agricultural business, including secured by farmland
663
    
697
    
1,566
  
Consumer
906
    
703
    
1,843
  
 
14,325
    
14,270
    
23,180
  
Loans more than 90 days delinquent, still on accrual:
          
       One- to four-family
 1,039     899     1,548  
Commercial business
—
    
8
    
—
  
Consumer
251
    
45
    
7
  
 
1,290
    
952
    
1,555
  
Total non-performing loans
15,615
    
15,222
    
24,735
  
Real estate owned (REO)
7,207
    
11,627
    
4,922
  
Other repossessed assets
202
    
268
    
62
  
 
Total non-performing assets
$
23,024
    
$
27,117
    
$
29,719
  
 
Total non-performing assets  /  Total assets
0.24
%
  
0.28
%
  
0.57
%
 
Purchase credit impaired loans (net)
$
53,271
    
$
58,555
    
$
5,674
  
 

 
 
Quarters Ended
REAL ESTATE OWNED
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
Balance, beginning of period
$
11,627
    
$
6,363
    
$
3,352
  
Additions from loan foreclosures
2
    
1,125
    
668
  
Additions from acquisitions
400
    
5,706
    
2,525
  
Proceeds from dispositions of REO
(4,666
)
  
(1,585
)
  
(1,738
)
Gain on sale of REO
49
    
18
    
115
  
Valuation adjustments in the period
(205
)
  
—
    
—
  
Balance, end of period
$
7,207
    
$
11,627
    
$
4,922
  
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 11

 
ADDITIONAL FINANCIAL INFORMATION
                    
(dollars in thousands)
                    
                     
DEPOSIT COMPOSITION
              
Percentage Change
   
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
  
Prior Qtr
  
Prior Yr
                     
Non-interest-bearing
  
$
3,036,330
    
$
2,619,618
    
$
1,504,768
    
15.9
%
  
101.8
%
 
Interest-bearing checking
  
767,460
    
1,159,846
    
472,033
    
(33.8
)%
  
62.6
%
Regular savings accounts
  
1,327,558
    
1,284,642
    
979,824
    
3.3
%
  
35.5
%
Money market accounts
  
1,610,640
    
1,637,092
    
584,743
    
(1.6
)%
  
175.4
%
 
Interest-bearing transaction & savings accounts
  
3,705,658
    
4,081,580
    
2,036,600
    
(9.2
)%
  
82.0
%
 
Interest-bearing certificates
  
1,287,873
    
1,353,870
    
778,049
    
(4.9
)%
  
65.5
%
 
Total deposits
  
$
8,029,861
    
$
8,055,068
    
$
4,319,417
    
(0.3
)%
  
85.9
%
 


 
GEOGRAPHIC CONCENTRATION OF DEPOSITS
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
   
Amount
  
Percentage
  
Amount
  
Percentage
  
Amount
  
Percentage
Washington
  
$
4,209,332
    
52.4%
  
$
4,219,304
    
52.4%
  
$
2,865,536
    
66.4%
Oregon
  
1,668,421
    
20.8%
  
1,648,421
    
20.4%
  
1,206,944
    
27.9%
California
  
1,565,326
    
19.5%
  
1,592,365
    
19.8%
  
—
    
—%
Idaho
  
428,681
    
5.3%
  
435,099
    
5.4%
  
246,937
    
5.7%
Utah
  
158,101
    
2.0%
  
159,879
    
2.0%
  
—
    
—%
Total deposits
  
$
8,029,861
    
100.0%
  
$
8,055,068
    
100.0%
  
$
4,319,417
    
100.0%
 


 
INCLUDED IN TOTAL DEPOSITS
  
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
Public non-interest-bearing accounts
  
$
82,527
    
$
85,489
    
$
44,195
  
Public interest-bearing transaction & savings accounts
  
123,713
    
123,941
    
58,023
  
Public interest-bearing certificates
  
29,983
    
31,281
    
35,326
  
 
Total public deposits
  
$
236,223
    
$
240,711
    
$
137,544
  
 
Total brokered deposits
  
$
135,603
    
$
162,936
    
$
4,800
  
 

 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 12

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
  
112,782
      
Total assets acquired
  
4,459,758
      
         
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
      
537,555
  
 
Goodwill
      
$
223,119
  
 

 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 13
 
ACQUISITION OF SIUSLAW FINANCIAL GROUP
  
March 6, 2015
         
Cash paid
      
$
5,806
  
Fair value of common shares issued
      
58,100
  
Total consideration
      
63,906
  
         
Fair value of assets acquired:
        
Cash and cash equivalents
  
$
84,405
      
Securities - available for sale
  
12,865
      
Loans receivable
  
247,098
      
Real estate owned held for sale
  
2,525
      
Property and equipment
  
8,127
      
Core deposit intangible
  
3,895
      
Other assets
  
10,848
      
Total assets acquired
  
369,763
      
         
Fair value of liabilities assumed:
        
Deposits
  
316,406
      
Junior subordinated debentures
  
5,959
      
Other liabilities
  
5,183
      
 
Total liabilities assumed
  
327,548
      
 
Net assets acquired
      
42,215
  
 
Goodwill
      
$
21,691
  
 
* 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 (1)
Quarters Ended
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
By expense category:
          
Personnel severance/retention fees
$
1,313
    
$
6,134
    
$
—
  
Professional services
852
    
5,757
    
1,280
  
Branch consolidation and other occupancy expenses
1,949
    
976
    
24
  
Client communications
251
    
306
    
66
  
Information/computer data services
1,417
    
2,069
    
40
  
Miscellaneous
1,031
    
3,127
    
238
  
Total merger and acquisition expense
$
6,813
    
$
18,369
    
$
1,648
  
           
By acquisition:
          
Siuslaw Financial Group
$
—
    
$
133
    
$
670
  
Starbuck Bancshares, Inc. (AmericanWest)
6,813
    
18,236
    
978
  
Total merger and acquisition expense
$
6,813
    
$
18,369
    
$
1,648
  
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
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 MARCH 31, 2016
  
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
                         
Banner Corporation-consolidated:
                        
      Total capital to risk-weighted assets
  
$
1,146,218
    
13.58
%
  
$
675,182
    
8.00
%
  
$
843,977
    
10.00
%
      Tier 1 capital to risk-weighted assets
  
1,064,372
    
12.61
%
  
506,386
    
6.00
%
  
675,182
    
8.00
%
      Tier 1 leverage capital to average assets
  
1,064,372
    
11.28
%
  
377,320
    
4.00
%
  
471,650
    
5.00
%
      Common equity tier 1 capital to risk-weighted assets
  
1,006,886
    
11.93
%
  
379,790
    
4.50
%
  
548,585
    
6.50
%
                         
Banner Bank:
                        
      Total capital to risk-weighted assets
  
1,034,320
    
12.54
%
  
659,676
    
8.00
%
  
824,595
    
10.00
%
      Tier 1 capital to risk-weighted assets
  
954,697
    
11.58
%
  
494,757
    
6.00
%
  
659,676
    
8.00
%
      Tier 1 leverage capital to average assets
  
954,697
    
10.42
%
  
366,529
    
4.00
%
  
458,161
    
5.00
%
      Common equity tier 1 capital to risk-weighted assets
  
954,697
    
11.58
%
  
371,068
    
4.50
%
  
535,987
    
6.50
%
                         
Islanders Bank:
                        
      Total capital to risk-weighted assets
  
38,876
    
20.23
%
  
15,371
    
8.00
%
  
19,214
    
10.00
%
      Tier 1 capital to risk-weighted assets
  
36,653
    
19.08
%
  
11,528
    
6.00
%
  
15,371
    
8.00
%
      Tier 1 leverage capital to average assets
  
36,653
    
13.71
%
  
10,695
    
4.00
%
  
13,369
    
5.00
%
      Common equity tier 1 capital to risk-weighted assets
  
36,653
    
19.08
%
  
8,646
    
4.50
%
  
12,489
    
6.50
%
 

 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 15

ADDITIONAL FINANCIAL INFORMATION
                      
(dollars in thousands)
                      
(rates / ratios annualized)
                      
                       
ANALYSIS OF NET INTEREST SPREAD
Quarter Ended
 
March 31, 2016
  
December 31, 2015
  
March 31, 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
$
5,707,882
  
$
68,743
  
4.84
%
  
$
5,785,986
  
$
69,552
  
4.77
%
  
$
2,913,207
  
$
35,561
  
4.95
%
Commercial/agricultural loans
1,471,638
  
16,025
  
4.38
%
  
1,469,445
  
16,303
  
4.40
%
  
885,940
  
8,967
  
4.10
%
Consumer and other loans
141,361
  
2,190
  
6.23
%
  
142,599
  
2,245
  
6.25
%
  
121,108
  
1,837
  
6.15
%
Total loans(1)
7,320,881
  
86,958
  
4.78
%
  
7,398,030
  
88,100
  
4.72
%
  
3,920,255
  
46,365
  
4.80
%
Mortgage-backed securities
1,004,836
  
5,390
  
2.16
%
  
1,025,612
  
5,440
  
2.10
%
  
308,068
  
1,027
  
1.35
%
Other securities
421,241
  
2,772
  
2.65
%
  
457,521
  
2,787
  
2.42
%
  
265,796
  
1,617
  
2.47
%
Interest-bearing deposits with banks
103,775
  
101
  
0.39
%
  
129,797
  
76
  
0.23
%
  
91,202
  
53
  
0.24
%
FHLB stock
17,531
  
80
  
1.84
%
  
17,268
  
92
  
2.11
%
  
26,942
  
7
  
0.11
%
Total investment securities
1,547,383
  
8,343
  
2.17
%
  
1,630,198
  
8,395
  
2.04
%
  
692,008
  
2,704
  
1.58
%
Total interest-earning assets
8,868,264
  
95,301
  
4.32
%
  
9,028,228
  
96,495
  
4.24
%
  
4,612,263
  
49,069
  
4.31
%
Non-interest-earning assets
900,296
        
870,169
        
230,634
      
Total assets
$
9,768,560
        
$
9,898,397
        
$
4,842,897
      
Deposits:
                      
Interest-bearing checking accounts
$
934,072
  
196
  
0.08
%
  
$
1,127,541
  
234
  
0.08
%
  
$
445,614
  
90
  
0.08
%
Savings accounts
1,307,369
  
423
  
0.13
%
  
1,595,451
  
420
  
0.10
%
  
929,852
  
344
  
0.15
%
Money market accounts
1,620,524
  
862
  
0.21
%
  
1,311,383
  
881
  
0.27
%
  
521,839
  
203
  
0.16
%
Certificates of deposit
1,328,741
  
1,465
  
0.44
%
  
1,418,774
  
1,611
  
0.45
%
  
769,378
  
1,096
  
0.58
%
Total interest-bearing deposits
5,190,706
  
2,946
  
0.23
%
  
5,453,149
  
3,146
  
0.23
%
  
2,666,683
  
1,733
  
0.26
%
Non-interest-bearing deposits
2,788,372
  
—
  
—
%
  
2,665,676
  
—
  
—
%
  
1,331,080
  
—
  
—
%
Total deposits
7,979,078
  
2,946
  
0.15
%
  
8,118,825
  
3,146
  
0.15
%
  
3,997,763
  
1,733
  
0.18
%
Other interest-bearing liabilities:
                      
FHLB advances
169,204
  
279
  
0.66
%
  
178,399
  
287
  
0.64
%
  
17,744
  
17
  
0.39
%
Other borrowings
102,865
  
75
  
0.29
%
  
99,515
  
73
  
0.29
%
  
88,304
  
43
  
0.20
%
Junior subordinated debentures
140,212
  
958
  
2.75
%
  
140,212
  
890
  
2.52
%
  
126,099
  
740
  
2.38
%
Total borrowings
412,281
  
1,312
  
1.28
%
  
418,126
  
1,250
  
1.19
%
  
232,147
  
800
  
1.40
%
Total funding liabilities
8,391,359
  
4,258
  
0.20
%
  
8,536,951
  
4,396
  
0.20
%
  
4,229,910
  
2,533
  
0.24
%
Other non-interest-bearing liabilities(2)
63,014
        
54,967
        
4,569
      
Total liabilities
8,454,373
        
8,591,918
        
4,234,479
      
Shareholders' equity
1,314,187
        
1,306,479
        
608,418
      
Total liabilities and shareholders' equity
$
9,768,560
        
$
9,898,397
        
$
4,842,897
      
Net interest income/rate spread
  
$
91,043
  
4.12
%
    
$
92,099
  
4.04
%
    
$
46,536
  
4.07
%
Net interest margin
    
4.13
%
      
4.05
%
      
4.09
%
                       
Additional Key Financial Ratios:
                      
Return on average assets
    
0.73
%
      
0.28
%
      
1.02
%
Return on average equity
    
5.44
%
      
2.09
%
      
8.09
%
Average equity/average assets
    
13.45
%
      
13.20
%
      
12.56
%
Average interest-earning assets/average interest-bearing liabilities
    
158.28
%
      
153.77
%
      
159.11
%
Average interest-earning assets/average funding liabilities
    
105.68
%
      
105.75
%
      
109.04
%
Non-interest income/average assets
    
0.82
%
      
0.74
%
      
1.15
%
Non-interest expense/average assets
    
3.46
%
      
4.02
%
      
3.51
%
Efficiency ratio(4)
    
75.70
%
      
90.76
%
      
69.59
%
(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.
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 16
 
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
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
Net interest income before provision for loan losses
$
91,043
    
$
92,099
    
$
46,536
  
Total non-interest income
19,959
    
18,356
    
13,696
  
Total GAAP revenue
111,002
    
110,455
    
60,232
  
Exclude net (gain) loss on sale of securities
(21
)
  
3
    
510
  
Exclude change in valuation of financial instruments carried at fair value
(29
)
  
1,547
    
(1,050
)
Revenue from core operations (non-GAAP)
$
110,952
    
$
112,005
    
$
59,692
  



 
ACQUISITION ACCOUNTING IMPACT ON NET INTEREST MARGIN
Quarters Ended
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
Net interest income before provision for loan losses (GAAP)
$
91,043
    
$
92,099
    
$
46,536
  
Exclude discount accretion on purchased loans
(1,689
)
  
(2,579
)
  
(111
)
Exclude premium amortization on acquired certificates of deposit
(461
)
  
(572
)
  
(69
)
Net interest income before discount accretion (non-GAAP)
$
88,893
    
$
88,948
    
$
46,356
  
           
Average interest-earning assets (GAAP)
$
8,868,264
    
$
9,028,228
    
$
4,612,263
  
Exclude average net loan discount on acquired loans
43,347
    
43,109
    
1,576
  
Average interest-earning assets before acquired loan discount (non-GAAP)
$
8,911,611
    
$
9,071,337
    
$
4,613,839
  
           
Net interest margin (GAAP)
4.13
%
  
4.05
%
  
4.09
%
Exclude impact on net interest margin from discount accretion
(0.08
)
  
(0.11
)
  
(0.01
)
Exclude impact on net interest margin from CD premium amortization
(0.02
)
  
(0.03
)
  
(0.01
)
Exclude impact of net loan discount on average earning assets
(0.02
)
  
(0.02
)
  
—
  
Net margin before discount accretion (non-GAAP)
4.01
%
  
3.89
%
  
4.07
%
 
 

 
NON-INTEREST INCOME/EXPENSE FROM CORE OPERATIONS
Quarters Ended
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
Total non-interest income (GAAP)
$
19,959
    
$
18,356
    
$
13,696
  
Exclude net (gain) loss on sale of securities
(21
)
  
3
    
510
  
Exclude change in valuation of financial instruments carried at fair value
(29
)
  
1,547
    
(1,050
)
Non-interest income from core operations (non-GAAP)
$
19,909
    
$
19,906
    
$
13,156
  
           
Total non-interest expense (GAAP)
$
84,034
    
$
100,254
    
$
41,914
  
Exclude acquisition related costs
(6,813
)
  
(18,369
)
  
(1,648
)
Non-interest expense from core operations (non-GAAP)
$
77,221
    
$
81,885
    
$
40,266
  
 
 
 
 
BANR- First Quarter 2016 Results
April 25, 2016
Page 17

 
ADDITIONAL FINANCIAL INFORMATION
          
(dollars in thousands except shares and per share data)
          
 
Quarters Ended
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
EARNINGS FROM CORE OPERATIONS
          
Net income (GAAP)
$
17,774
    
$
6,893
    
$
12,134
  
Exclude net (gain) loss on sale of securities
(21
)
  
3
    
510
  
Exclude change in valuation of financial instruments carried at fair value
(29
)
  
1,547
    
(1,050
)
Exclude acquisition-related costs
6,813
    
18,369
    
1,648
  
Exclude related tax expense (benefit)
(2,417
)
  
(6,425
)
  
(120
)
Total earnings from core operations (non-GAAP)
$
22,120
    
$
20,387
    
$
13,122
  
           
Diluted earnings per share (GAAP)
$
0.52
    
$
0.20
    
$
0.61
  
Diluted core earnings per share (non-GAAP)
$
0.65
    
$
0.60
    
$
0.66
  
           
NET EFFECT OF ACQUISITION-RELATED COSTS ON EARNINGS
          
Acquisition-related costs
$
(6,813
)
  
$
(18,369
)
  
$
(1,648
)
Related tax benefit
2,435
    
5,867
    
315
  
Total net effect of acquisition-related costs on earnings
$
(4,378
)
  
$
(12,502
)
  
$
(1,333
)
           
Diluted weighted average shares outstanding
34,103,727
    
33,934,426
    
19,845,019
  
Total net effect of acquisition-related costs on diluted weighted average earnings per share
$
(0.13
)
  
$
(0.37
)
  
$
(0.07
)

   
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS
          
Shareholders' equity (GAAP)
$
1,320,155
    
$
1,300,059
    
$
651,313
  
Exclude goodwill and other intangible assets, net
280,409
    
285,210
    
27,258
  
Tangible common shareholders' equity (non-GAAP)
$
1,039,746
    
$
1,014,849
    
$
624,055
  
           
Total assets (GAAP)
$
9,745,594
    
$
9,796,298
    
$
5,211,372
  
Exclude goodwill and other intangible assets, net
280,409
    
285,210
    
27,258
  
Total tangible assets (non-GAAP)
$
9,465,185
    
$
9,511,088
    
$
5,184,114
  
Tangible common shareholders' equity to tangible assets (non-GAAP)
10.98
%
  
10.67
%
  
12.04
%
           
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
          
Tangible common shareholders' equity
$
1,039,746
    
$
1,014,849
    
$
624,055
  
Common shares outstanding at end of period
34,221,451
    
34,242,255
    
20,976,641
  
Common shareholders' equity (book value) per share (GAAP)
$
38.58
    
$
37.97
    
$
31.05
  
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)
$
30.38
    
$
29.64
    
$
29.75
  

ADDITIONAL FINANCIAL INFORMATION
          
(dollars in thousands except shares and per share data)
          
   
 
Mar 31, 2016
  
Dec 31, 2015
  
Mar 31, 2015
RATIO OF ADJUSTED ALLOWANCE FOR LOAN LOSSES TO ADJUSTED LOANS
          
Loans receivable (GAAP)
$
7,185,999
    
$
7,314,504
    
$
4,105,399
  
Net loan discount on acquired loans
42,302
    
43,657
    
5,032
  
Adjusted loans (non-GAAP)
$
7,228,301
    
$
7,358,161
    
$
4,110,431
  
           
Allowance for loan losses (GAAP)
$
78,197
    
$
78,008
    
$
75,365
  
Net loan discount on acquired loans
42,302
    
43,657
    
5,032
  
Adjusted allowance for loan losses (non-GAAP)
$
120,499
    
$
121,665
    
$
80,397
  
           
Adjusted allowance for loan losses / Adjusted loans (non-GAAP)
1.67
%
  
1.65
%
  
1.96
%


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