Banner Corporation Reports Net Income of $39.6 Million, or $1.15 Per Diluted Share, in Third Quarter 2019; Highlighted by Strong Core Deposit Growth

October 23, 2019 4:00 PM

WALLA WALLA, Wash., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $39.6 million, or $1.15 per diluted share, in the third quarter of 2019, compared to $39.7 million, or $1.14 per diluted share, in the preceding quarter and a 5% increase when compared to $37.8 million, or $1.17 per diluted share, in the third quarter of 2018. Third quarter of 2019 results include $676,000 of acquisition-related expenses, compared to $301,000 of acquisition-related expenses in the preceding quarter and $1.0 million in the third quarter of 2018. In the first nine months of 2019, net income increased 14% to $112.6 million, or $3.23 per diluted share, compared to $99.0 million, or $3.05 per diluted share, in the first nine months a year ago. The 2019 results include $3.1 million of acquisition-related expenses compared to $1.0 million of acquisition-related expenses for the 2018 period.

“Our third quarter 2019 performance continues to demonstrate the success of our super community bank model which is based on responsive service that generates client loyalty and attracts new client relationships," stated Mark J. Grescovich, President and Chief Executive Officer. “We recently announced the pending acquisition of AltaPacific Bancorp, the holding company for AltaPacific Bank. This transaction will increase Banner’s presence in California by adding attractive core deposits and new commercial banking relationships within our existing geographic footprint.”

At September 30, 2019, Banner Corporation had $12.10 billion in assets, $8.74 billion in net loans and $9.73 billion in deposits. Banner operates 172 branch offices, including branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Third Quarter 2019 Highlights

Revenues decreased 1% to $137.5 million, compared to $139.4 million in the preceding quarter and increased 6% compared to $129.5 million in the third quarter a year ago.
Net interest income, before the provision for loan losses, was $116.6 million, compared to $116.7 million in the preceding quarter and increased 7% from $109.1 million in the third quarter a year ago.
Net interest margin was 4.25%, compared to 4.38% in the preceding quarter and 4.48% in the third quarter a year ago.
Mortgage banking revenue increased to $6.6 million, compared to $5.9 million in the preceding quarter and increased 14% compared to $5.8 million in the third quarter a year ago.
Return on average assets was 1.31% compared to 1.36% in the preceding quarter and 1.43% in the third quarter a year ago.
Net loans receivable increased to $8.74 billion at September 30, 2019, compared to $8.65 billion at June 30, 2019, and increased 13% when compared to $7.73 billion at September 30, 2018.
Non-performing assets remained low at $18.6 million, or 0.15% of total assets, at September 30, 2019, compared to $21.0 million, or 0.18% of total assets three months earlier, and $16.7 million, or 0.16% of total assets, at September 30, 2018.
Provision for loan losses was $2.0 million, and the allowance for loan losses was $97.8 million, or 1.11% of total loans receivable, as of September 30, 2019.
Core deposits increased 4% to $8.51 billion at September 30, 2019, compared to $8.22 billion at June 30, 2019 and increased 13% compared to $7.51 billion a year ago. Core deposits represented 87% of total deposits at September 30, 2019.
Quarterly dividends to shareholders were $0.41 per share.
Common shareholders’ equity per share increased 2% to $44.80 at September 30, 2019, compared to $43.99 at the preceding quarter end and an increase of 14% from $39.26 a year ago.
Tangible common shareholders' equity per share* increased 2% to $34.10 at September 30, 2019, compared to $33.36 at the preceding quarter end and an increase of 9% from $31.20 a year ago.
Repurchased 400,000 shares of common stock at an average cost of $54.62 per share.

*Tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, amortization of core deposit intangibles, real estate owned gain (loss) and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

Certain reclassifications have been made to the 2018 Consolidated Financial Statements and/or schedules to conform to the 2019 presentation. These reclassifications have affected certain line items and ratios for the prior periods but have not changed net income or shareholders’ equity for those periods. The effect of these reclassifications is considered immaterial.

Significant Recent Initiatives and Events

On July 24, 2019, Banner and AltaPacific Bancorp ("AltaPacific"), the holding company for AltaPacific Bank, entered into a definitive merger agreement pursuant to which Banner will acquire AltaPacific in an all-stock transaction, subject to the terms and conditions set forth therein. Under the merger agreement, AltaPacific will merge with and into Banner, and immediately thereafter AltaPacific Bank will merge with and into Banner Bank. The merger agreement specifies AltaPacific shareholders will receive 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, subject to potential adjustment as provided in the merger agreement. Based on the closing price of $54.19 per share of Banner common stock on July 23, 2019, the merger consideration would have an aggregate value of approximately $87.4 million. The transaction is expected to close in the fourth quarter of 2019, subject to customary closing conditions.

AltaPacific Bank is an independent business bank headquartered in Santa Rosa, California and has additional banking offices in Glendora, Ontario, Riverside, San Bernardino and Temecula, California. The bank is focused on meeting the specialized needs of small to medium-sized businesses and professionals throughout California. At September 30, 2019, AltaPacific Bank had assets of $420 million, a loan portfolio of $334 million, and a deposit base of $297 million. Banner expects the transaction to be immediately accretive to earnings per share, excluding one-time transaction expenses. The combined company will have approximately $12.5 billion in assets.

Income Statement Review

Banner's net interest margin was 4.25% for the third quarter of 2019, a 13 basis-point decrease compared to 4.38% in the preceding quarter and a 23 basis-point decrease compared to 4.48% in the third quarter a year ago. The decrease in net interest margin during the quarter reflects lower yields on average interest-earning assets largely as a result of two 25 basis point decreases in the targeted Fed Funds Rate in the third quarter coupled with a longer term decline in the 10 year treasury yield. Acquisition accounting adjustments added six basis points to the net interest margin in the current quarter compared to seven basis points in the preceding quarter and 12 basis points in the third quarter a year ago. The total purchase discount for acquired loans was $21.3 million at September 30, 2019, compared to $22.6 million at June 30, 2019, and $15.4 million at September 30, 2018. In the first nine months of the year, Banner’s net interest margin was 4.33% compared to 4.41% in the first nine months of 2018.

Average interest-earning asset yields decreased 12 basis points to 4.79% compared to 4.91% for the preceding quarter and decreased four basis points compared to 4.83% in the third quarter a year ago. Average loan yields decreased 13 basis points to 5.20% compared to 5.33% in the preceding quarter and decreased 11 basis points compared to 5.31% in the third quarter a year ago. Loan discount accretion added seven basis points to loan yields in the third quarter of 2019, compared to nine basis points in the preceding quarter, and 15 basis points in the third quarter a year ago. Deposit costs were 0.42% in the third quarter of 2019, a three basis-point increase compared to the preceding quarter and a 17 basis-point increase compared to the third quarter a year ago. The total cost of funds was 0.57% during the third quarter of 2019, a one basis-point increase compared to the preceding quarter and a 20 basis-point increase compared to the third quarter a year ago.

Banner recorded a $2.0 million provision for loan losses in the current quarter, the same as in the prior quarter and the year ago quarter. The provision is primarily a result of new loan originations, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs.

Total non-interest income was $20.9 million in the third quarter of 2019, compared to $22.7 million in the second quarter of 2019 and $20.4 million in the third quarter a year ago. Deposit fees and other service charges were $10.3 million in the third quarter of 2019, compared to $14.0 million in the preceding quarter and $12.3 million in the third quarter a year ago. The decrease in deposit fees and other service charges is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, which reduced the amount of interchange fees Banner can charge for certain debit card transactions. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $6.6 million in the third quarter, compared to $5.9 million in the preceding quarter and $5.8 million in the third quarter of 2018. The higher mortgage banking revenue reflected an increase in residential and multifamily mortgage held-for-sale loan production. The increase in residential held-for-sale loan production was primarily due to increased refinance activity. Home purchase activity accounted for 56% of one- to four-family mortgage loan originations in the third quarter of 2019, compared to 77% in the prior quarter and 82% in the third quarter of 2018. In the first nine months of 2019, total non-interest income was $61.7 million, compared to $63.0 million in the first nine months of 2018.

Banner’s third quarter 2019 results included a $69,000 net loss for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and a $2,000 net loss on the sale of securities. In the preceding quarter, results included an $114,000 net loss for fair value adjustments and a $28,000 net loss on the sale of securities. In the third quarter a year ago, results included a $45,000 net gain for fair value adjustments.

Total revenue was $137.5 million for the third quarter of 2019, compared to $139.4 million in the preceding quarter and increased 6% compared to $129.5 million in the third quarter a year ago. Year-to-date, total revenue increased 9% to $411.1 million compared to $376.5 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for loan losses and non-interest income revenue excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $137.6 million in the third quarter of 2019, compared to $139.5 million in the preceding quarter and $129.4 million in the third quarter of 2018. In the first nine months of the year, adjusted revenue* was $411.3 million, compared to $372.9 million in the first nine months of 2018.

Banner’s total non-interest expense was $87.3 million in the third quarter of 2019, compared to $86.7 million in the preceding quarter and $81.6 million in the third quarter of 2018. Acquisition-related expenses were $676,000 for the third quarter of 2019, compared to $301,000 for the preceding quarter, and $1.0 million in the third quarter of 2018. Other non-interest expense items of significance for the third quarter of 2019 include a credit of $2.7 million for previously paid deposit insurance premiums which resulted in a net deposit insurance benefit of $1.6 million for the quarter, which came as a result of the FDIC exceeding its stated Deposit Insurance Fund Reserve Ratio. This net deposit insurance benefit compares to a deposit insurance expense of $1.4 million in the preceding quarter and a deposit insurance expense of $991,000 in the third quarter of 2018. The current quarter also includes a $1.6 million adjustment to salary and employee benefits expense as a result of Banner decreasing the discount rate used to calculate its liability associated with deferred compensation plans. Year-to-date, total non-interest expense was $264.0 million, compared to $246.0 million in the same period a year earlier. Banner’s efficiency ratio was 63.50% for the current quarter, compared to 62.22% in the preceding quarter and 63.04% in the year ago quarter. Banner’s adjusted efficiency ratio* was 60.71% for the current quarter, compared to 59.56% in the preceding quarter and 60.21% in the year ago quarter.

For the third quarter of 2019, Banner recorded $8.6 million in state and federal income tax expense for an effective tax rate of 17.9%, reflecting a refund of state income taxes totaling $1.2 million as well as adjustments related to filing its federal and state income tax returns and the benefits from tax exempt income sources. Banner’s normal, expected statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased to $12.10 billion at September 30, 2019, compared to $11.85 billion at June 30, 2019, and $10.51 billion at September 30, 2018. The total of securities and interest-bearing deposits held at other banks was $1.87 billion at both September 30, 2019 and June 30, 2019. The total of securities and interest-bearing deposits held at other banks was $1.76 billion at September 30, 2018. The average effective duration of Banner's securities portfolio was approximately 3.1 years at September 30, 2019, compared to 4.2 years at September 30, 2018.

Net loans receivable increased to $8.74 billion at September 30, 2019, compared to $8.65 billion at June 30, 2019, and increased 13% when compared to $7.73 billion at September 30, 2018. The year-over-year increase in net loans included $631.7 million of portfolio loans acquired in the Skagit acquisition during the fourth quarter of 2018. Commercial real estate and multifamily real estate loans were $4.01 billion at September 30, 2019, compared to $3.95 billion at June 30, 2019, and increased 14% compared to $3.52 billion a year ago. Commercial business loans increased modestly to $1.62 billion at September 30, 2019, compared to $1.60 billion at June 30, 2019, and increased 19% compared to $1.36 billion a year ago. Agricultural business loans increased by 3% to $390.5 million at September 30, 2019, compared to $380.8 million three months earlier and increased by 9% compared to $360.0 million a year ago. Total construction, land and land development loans were $1.08 billion at September 30, 2019, unchanged from June 30, 2019, and a 6% increase compared to $1.02 billion a year earlier. Consumer loans decreased slightly to $779.6 million at September 30, 2019, compared to $790.0 million at June 30, 2019, and increased 10% compared to $710.5 million a year ago. One- to four-family loans increased modestly to $947.5 million at September 30, 2019, compared to $944.6 million at June 30, 2019, and increased 12% compared to $849.9 million a year ago.

Loans held for sale increased substantially to $244.9 million at September 30, 2019, compared to $170.7 million at June 30, 2019, and $72.9 million at September 30, 2018. The volume of one- to four- family residential mortgage loans sold was $204.6 million in the current quarter, compared to $139.0 million in the preceding quarter and $134.1 million in the third quarter a year ago. During the third quarter of 2019, Banner sold $79.4 million in multifamily loans. Banner did not sell any multifamily loans in the preceding quarter and sold $94.0 million in the third quarter a year ago.

Total deposits increased 5% to $9.73 billion at September 30, 2019, compared to $9.29 billion at June 30, 2019, and increased 12% when compared to $8.69 billion a year ago. Non-interest-bearing account balances increased 6% to $3.89 billion at September 30, 2019, compared to $3.67 billion at June 30, 2019, and increased 12% compared to $3.47 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 4% from the prior quarter and increased 13% compared to a year ago. Core deposits represented 87% of total deposits at September 30, 2019, compared to 88% of total deposits at June 30, 2019, and 86% of total deposits a year earlier. Certificates of deposit increased 14% to $1.22 billion at September 30, 2019, compared to $1.07 billion at June 30, 2019, and increased 3% compared to $1.18 billion a year earlier. The increase in certificates of deposit primarily reflects the increase in brokered deposits to $299.5 million at September 30, 2019, compared to $138.4 million at June 30, 2019 and were $352.2 million a year ago. The increase in brokered deposits reflects the decision to fund a smaller portion of the balance sheet with FHLB borrowings. FHLB borrowings were reduced to $382.0 million at September 30, 2019 compared to $606.0 million at June 30, 2019 and were $221.2 million a year earlier.

At September 30, 2019, total common shareholders' equity was $1.53 billion, or 12.65% of assets, compared to $1.52 billion or 12.84% of assets at June 30, 2019, and $1.27 billion or 12.10% of assets a year ago. At September 30, 2019, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.17 billion, or 9.93% of tangible assets*, compared to $1.15 billion, or 10.05% of tangible assets, at June 30, 2019, and $1.01 billion, or 9.86% of tangible assets, a year ago. Banner's tangible book value per share* increased to $34.10 at September 30, 2019, compared to $31.20 per share a year ago.

Banner repurchased 400,000 shares of its common stock in the third quarter of 2019 at an average cost of $54.62 per share. In the second quarter of 2019, Banner repurchased 600,000 shares of its common stock at an average cost of $53.46 per share. Banner 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 Act regulatory standards. At September 30, 2019, Banner's common equity Tier 1 capital ratio was 10.86%, its Tier 1 leverage capital to average assets ratio was 10.70%, and its total capital to risk-weighted assets ratio was 13.20%.

Credit Quality

The allowance for loan losses was $97.8 million at September 30, 2019, or 1.11% of total loans receivable outstanding and 536% of non-performing loans compared to $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% of non-performing loans, and $95.3 million at September 30, 2018, or 1.22% of total loans receivable outstanding and 603% of non-performing loans. Net loan charge-offs totaled $2.5 million in the third quarter, compared to net loan charge-offs of $1.1 million in the preceding quarter and net loan charge-offs of $612,000 in the third quarter a year ago. Primarily as a result of the origination of new loans, the renewal of acquired loans out of the discounted acquired loan portfolio and net charge-offs, Banner recorded a $2.0 million provision for loan losses in the current quarter, which was the same amount as recorded in the prior quarter and in the year ago quarter. Non-performing loans were $18.3 million at September 30, 2019, compared to $18.4 million at June 30, 2019, and $15.8 million a year ago. Real estate owned and other repossessed assets were $343,000 at September 30, 2019, compared to $2.6 million at June 30, 2019, and $937,000 a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date. At September 30, 2019, the total purchase discount for acquired loans was $21.3 million.

Banner's total non-performing assets were $18.6 million, or 0.15% of total assets, at September 30, 2019, compared to $21.0 million, or 0.18% of total assets, at June 30, 2019, and $16.7 million, or 0.16% of total assets, a year ago. In addition to non-performing assets, there were $12.6 million of purchased credit-impaired loans at September 30, 2019, compared to $12.9 million at both June 30, 2019 and September 30, 2018.

Conference Call

Banner will host a conference call on Thursday, October 24, 2019, at 8:00 a.m. PDT, to discuss its third quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10135112, or at www.bannerbank.com.

About the Company

Banner Corporation is a $12.10 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

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

Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the proposed merger of Banner and AltaPacific 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 requisite regulatory approvals for the proposed merger of Banner and AltaPacific may be delayed or may not be obtained (or may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed merger); (3) the requisite approval of AltaPacific shareholders may be delayed or may not be obtained, the other closing conditions to the merger may be delayed or may not be obtained, or the merger agreement may be terminated; (4) business disruption may occur following or in connection with the proposed merger of Banner and AltaPacific; (5) Banner’s or AltaPacific’s businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities; (6) the possibility that the proposed merger is more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of managements’ attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise; (7) 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; (8) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for loan losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (9) competitive pressures among depository institutions; (10) interest rate movements and their impact on customer behavior and net interest margin; (11) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (12) fluctuations in real estate values; (13) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (14) the ability to access cost-effective funding; (15) changes in financial markets; (16) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (17) the costs, effects and outcomes of litigation; (18) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to 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; (19) changes in accounting principles, policies or guidelines; (20) future acquisitions by Banner of other depository institutions or lines of business; (21) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors; and (22) 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									Nine Months Ended
(in thousands except shares and per share data)	Sep 30, 2019			Jun 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018

INTEREST INCOME:
Loans receivable	$	118,096		$	117,007		$	104,868		$	350,558		$	298,743
Mortgage-backed securities	9,415			9,794			8,915			29,716			25,145
Securities and cash equivalents	3,925			4,037			3,865			11,996			11,003
	131,436			130,838			117,648			392,270			334,891
INTEREST EXPENSE:
Deposits	10,014			9,023			5,517			27,680			13,139
Federal Home Loan Bank advances	3,107			3,370			1,388			9,953			3,564
Other borrowings	82			67			60			209			179
Junior subordinated debentures	1,612			1,683			1,605			5,008			4,495
	14,815			14,143			8,570			42,850			21,377
Net interest income before provision for loan losses	116,621			116,695			109,078			349,420			313,514
PROVISION FOR LOAN LOSSES	2,000			2,000			2,000			6,000			6,000
Net interest income	114,621			114,695			107,078			343,420			307,514
NON-INTEREST INCOME:
Deposit fees and other service charges	10,331			14,046			12,255			36,995			35,535
Mortgage banking operations	6,616			5,936			5,816			15,967			15,324
Bank-owned life insurance	1,076			1,123			1,726			3,475			3,511
Miscellaneous	2,914			1,713			569			5,431			4,995
	20,937			22,818			20,366			61,868			59,365
Net (loss) gain on sale of securities	(2		)	(28		)	—			(29		)	48
Net change in valuation of financial instruments carried at fair value	(69		)	(114		)	45			(172		)	3,577
Total non-interest income	20,866			22,676			20,411			61,667			62,990
NON-INTEREST EXPENSE:
Salary and employee benefits	59,090			55,629			48,930			169,359			150,491
Less capitalized loan origination costs	(7,889		)	(7,399		)	(4,318		)	(20,137		)	(13,062		)
Occupancy and equipment	12,566			12,681			12,385			39,013			35,725
Information / computer data services	5,657			5,273			4,766			16,256			13,711
Payment and card processing services	4,330			4,041			3,748			12,355			11,179
Professional and legal expenses	2,704			2,336			3,010			7,474			11,276
Advertising and marketing	2,221			2,065			1,786			5,815			5,758
Deposit insurance (benefit) expense	(1,604		)	1,418			991			1,232			3,353
State/municipal business and use taxes	1,011			1,007			902			2,963			2,430
Real estate operations	126			260			433			263			553
Amortization of core deposit intangibles	1,985			2,053			1,348			6,090			4,112
Miscellaneous	6,435			7,051			6,646			20,230			19,444
	86,632			86,415			80,627			260,913			244,970
Acquisition-related expenses	676			301			1,005			3,125			1,005
Total non-interest expense	87,308			86,716			81,632			264,038			245,975
Income before provision for income taxes	48,179			50,655			45,857			141,049			124,529
PROVISION FOR INCOME TAXES	8,602			10,955			8,084			28,426			25,542
NET INCOME	$	39,577		$	39,700		$	37,773		$	112,623		$	98,987
Earnings per share available to common shareholders:
Basic	$	1.15		$	1.14		$	1.17		$	3.24		$	3.06
Diluted	$	1.15		$	1.14		$	1.17		$	3.23		$	3.05
Cumulative dividends declared per common share	$	0.41		$	0.41		$	0.38		$	1.23		$	1.58
Weighted average common shares outstanding:
Basic	34,407,462			34,831,047			32,256,789			34,760,607			32,300,688
Diluted	34,497,994			34,882,359			32,376,623			34,850,006			32,406,414
Decrease in common shares outstanding	(400,286		)	(579,103		)	(2,939		)	(1,009,415		)	(323,728		)

FINANCIAL CONDITION													Percentage Change
(in thousands except shares and per share data)	Sep 30, 2019			Jun 30, 2019			Dec 31, 2018			Sep 30, 2018			Prior Qtr		Prior Yr Qtr

ASSETS
Cash and due from banks	$	250,671		$	187,043		$	231,029		$	184,417		34.0	%	35.9	%
Interest-bearing deposits	73,785			59,753			41,167			64,244			23.5	%	14.9	%
Total cash and cash equivalents	324,456			246,796			272,196			248,661			31.5	%	30.5	%
Securities - trading	25,672			25,741			25,896			25,764			(0.3	)%	(0.4	)%
Securities - available for sale	1,539,908			1,561,009			1,636,223			1,412,273			(1.4	)%	9.0	%
Securities - held to maturity	230,056			203,222			234,220			258,699			13.2	%	(11.1	)%
Total securities	1,795,636			1,789,972			1,896,339			1,696,736			0.3	%	5.8	%
Federal Home Loan Bank stock	25,623			34,583			31,955			19,196			(25.9	)%	33.5	%
Loans held for sale	244,889			170,744			171,031			72,850			43.4	%	236.2	%
Loans receivable	8,835,368			8,746,550			8,684,595			7,822,519			1.0	%	12.9	%
Allowance for loan losses	(97,801		)	(98,254		)	(96,485		)	(95,263		)	(0.5	)%	2.7	%
Net loans receivable	8,737,567			8,648,296			8,588,110			7,727,256			1.0	%	13.1	%
Accrued interest receivable	40,033			40,238			38,593			37,676			(0.5	)%	6.3	%
Real estate owned held for sale, net	228			2,513			2,611			364			(90.9	)%	(37.4	)%
Property and equipment, net	171,279			171,233			171,809			151,212			—	%	13.3	%
Goodwill	339,154			339,154			339,154			242,659			—	%	39.8	%
Other intangibles, net	26,610			28,595			32,924			18,499			(6.9	)%	43.8	%
Bank-owned life insurance	179,076			178,922			177,467			163,265			0.1	%	9.7	%
Other assets	213,291			196,328			149,128			135,929			8.6	%	56.9	%
Total assets	$	12,097,842		$	11,847,374		$	11,871,317		$	10,514,303		2.1	%	15.1	%
LIABILITIES
Deposits:
Non-interest-bearing	$	3,885,210		$	3,671,995		$	3,657,817		$	3,469,294		5.8	%	12.0	%
Interest-bearing transaction and savings accounts	4,624,970			4,546,202			4,498,966			4,035,856			1.7	%	14.6	%
Interest-bearing certificates	1,218,591			1,070,770			1,320,265			1,180,674			13.8	%	3.2	%
Total deposits	9,728,771			9,288,967			9,477,048			8,685,824			4.7	%	12.0	%
Advances from Federal Home Loan Bank	382,000			606,000			540,189			221,184			(37.0	)%	72.7	%
Customer repurchase agreements and other borrowings	120,014			118,370			118,995			98,979			1.4	%	21.3	%
Junior subordinated debentures at fair value	113,417			113,621			114,091			113,110			(0.2	)%	0.3	%
Accrued expenses and other liabilities	181,351			159,131			102,061			82,530			14.0	%	119.7	%
Deferred compensation	41,354			40,230			40,338			40,478			2.8	%	2.2	%
Total liabilities	10,566,907			10,326,319			10,392,722			9,242,105			2.3	%	14.3	%
SHAREHOLDERS' EQUITY
Common stock	1,286,711			1,306,888			1,337,436			1,175,250			(1.5	)%	9.5	%
Retained earnings	203,704			178,257			134,055			109,942			14.3	%	85.3	%
Other components of shareholders' equity	40,520			35,910			7,104			(12,994		)	12.8	%	nm
Total shareholders' equity	1,530,935			1,521,055			1,478,595			1,272,198			0.6	%	20.3	%
Total liabilities and shareholders' equity	$	12,097,842		$	11,847,374		$	11,871,317		$	10,514,303		2.1	%	15.1	%
Common Shares Issued:
Shares outstanding at end of period	34,173,357			34,573,643			35,182,772			32,402,757
Common shareholders' equity per share (1)	$	44.80		$	43.99		$	42.03		$	39.26
Common shareholders' tangible equity per share (1) (2)	$	34.10		$	33.36		$	31.45		$	31.20
Common shareholders' tangible equity to tangible assets (2)	9.93		%	10.05		%	9.62		%	9.86		%
Consolidated Tier 1 leverage capital ratio	10.70		%	10.83		%	10.98		%	11.04		%

(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 final two pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
													Percentage Change
LOANS	Sep 30, 2019			Jun 30, 2019			Dec 31, 2018			Sep 30, 2018			Prior Qtr		Prior Yr Qtr

Commercial real estate:
Owner occupied	$	1,463,303		$	1,433,995		$	1,430,097		$	1,271,363		2.0	%	15.1	%
Investment properties	2,150,938			2,116,306			2,131,059			1,943,793			1.6	%	10.7	%
Multifamily real estate	399,814			402,241			368,836			309,809			(0.6	)%	29.1	%
Commercial construction	190,532			172,931			172,410			154,071			10.2	%	23.7	%
Multifamily construction	214,878			189,160			184,630			172,433			13.6	%	24.6	%
One- to four-family construction	488,945			503,061			534,678			498,549			(2.8	)%	(1.9	)%
Land and land development:
Residential	163,829			187,180			188,508			171,610			(12.5	)%	(4.5	)%
Commercial	26,119			27,470			27,278			22,382			(4.9	)%	16.7	%
Commercial business	1,619,391			1,598,788			1,483,614			1,358,149			1.3	%	19.2	%
Agricultural business including secured by farmland	390,505			380,805			404,873			359,966			2.5	%	8.5	%
One- to four-family real estate	947,475			944,617			973,616			849,928			0.3	%	11.5	%
Consumer:
Consumer secured by one- to four-family real estate	566,792			575,658			568,979			539,143			(1.5	)%	5.1	%
Consumer-other	212,847			214,338			216,017			171,323			(0.7	)%	24.2	%
Total loans receivable	$	8,835,368		$	8,746,550		$	8,684,595		$	7,822,519		1.0	%	12.9	%
Restructured loans performing under their restructured terms	$	6,721		$	6,594		$	13,422		$	13,328
Loans 30 - 89 days past due and on accrual (1)	$	11,496		$	17,923		$	25,108		$	8,688
Total delinquent loans (including loans on non-accrual), net (2)	$	26,830		$	34,479		$	38,721		$	21,191
Total delinquent loans / Total loans receivable	0.30		%	0.40		%	0.45		%	0.27		%

(1) Includes $112,000 of purchased credit-impaired loans at September 30, 2019 compared to $3,000 at December 31, 2018 and $5,000 at September 30, 2018.
(2) Delinquent loans include $412,000 of delinquent purchased credit-impaired loans at September 30, 2019 compared to $519,000 at December 31, 2018 and $568,000 at September 30, 2018.

LOANS BY GEOGRAPHIC LOCATION											Percentage Change
	Sep 30, 2019				Jun 30, 2019		Dec 31, 2018		Sep 30, 2018		Prior Qtr		Prior Yr Qtr
	Amount		Percentage		Amount		Amount		Amount

Washington	$	4,313,972	48.8	%	$	4,293,854	$	4,324,588	$	3,640,209	0.5	%	18.5	%
Oregon	1,615,192		18.3	%	1,628,102		1,636,152		1,628,703		(0.8	)%	(0.8	)%
California	1,729,208		19.5	%	1,659,326		1,596,604		1,496,817		4.2	%	15.5	%
Idaho	552,523		6.3	%	548,189		521,026		504,297		0.8	%	9.6	%
Utah	62,197		0.7	%	62,944		57,318		63,053		(1.2	)%	(1.4	)%
Other	562,276		6.4	%	554,135		548,907		489,440		1.5	%	14.9	%
Total loans receivable	$	8,835,368	100.0	%	$	8,746,550	$	8,684,595	$	7,822,519	1.0	%	12.9	%

ADDITIONAL FINANCIAL INFORMATION(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending September 30, 2019, June 30, 2019, and September 30, 2018 and the nine months ending September 30, 2019 and September 30, 2018 (in thousands):

LOAN ORIGINATIONS	Quarters Ended						Nine Months Ended
	Sep 30, 2019		Jun 30, 2019		Sep 30, 2018		Sep 30, 2019		Sep 30, 2018
Commercial real estate	$	114,528	$	81,361	$	142,393	$	290,085	$	363,899
Multifamily real estate	29,645		21,651		2,215		58,913		9,040
Construction and land	303,151		368,224		370,484		904,869		1,062,834
Commercial business	194,606		241,134		303,472		561,652		632,368
Agricultural business	12,363		20,702		36,747		65,124		104,801
One-to four-family residential	27,734		26,210		51,459		85,733		95,810
Consumer	101,613		119,970		74,339		285,357		259,161
Total loan originations (excluding loans held for sale)	$	783,640	$	879,252	$	981,109	$	2,251,733	$	2,527,913

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
	Quarters Ended									Nine Months Ended
CHANGE IN THE	Sep 30, 2019			Jun 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period	$	98,254		$	97,308		$	93,875		$	96,485		$	89,028
Provision for loan losses	2,000			2,000			2,000			6,000			6,000
Recoveries of loans previously charged off:
Commercial real estate	107			149			12			277			1,580
Construction and land	156			30			5			208			190
One- to four-family real estate	129			230			86			402			732
Commercial business	162			215			586			400			856
Agricultural business, including secured by farmland	2			35			—			37			41
Consumer	154			223			46			487			264
	710			882			735			1,811			3,663
Loans charged off:
Commercial real estate	(314		)	(393		)	(102		)	(1,138		)	(401		)
Construction and land	—			—			(479		)	—			(479		)
One- to four-family real estate	(86		)	—			(27		)	(86		)	(43		)
Commercial business	(1,599		)	(802		)	(473		)	(2,991		)	(1,367		)
Agricultural business, including secured by farmland	(741		)	(162		)	(5		)	(907		)	(341		)
Consumer	(423		)	(579		)	(261		)	(1,373		)	(797		)
	(3,163		)	(1,936		)	(1,347		)	(6,495		)	(3,428		)
Net (charge-offs) recoveries	(2,453		)	(1,054		)	(612		)	(4,684		)	235
Balance, end of period	$	97,801		$	98,254		$	95,263		$	97,801		$	95,263
Net (charge-offs) recoveries / Average loans receivable	(0.027		)%	(0.012		)%	(0.008		)%	(0.053		)%	0.003		%

ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES	Sep 30, 2019			Jun 30, 2019			Dec 31, 2018			Sep 30, 2018
Specific or allocated loss allowance:
Commercial real estate	$	28,515		$	26,730		$	27,132		$	25,147
Multifamily real estate	4,283			4,344			3,818			3,745
Construction and land	22,569			23,554			24,442			24,564
One- to four-family real estate	4,569			4,701			4,714			4,423
Commercial business	21,147			19,557			19,438			17,948
Agricultural business, including secured by farmland	3,895			3,691			3,778			3,505
Consumer	8,441			8,452			7,972			8,110
Total allocated	93,419			91,029			91,294			87,442
Unallocated	4,382			7,225			5,191			7,821
Total allowance for loan losses	$	97,801		$	98,254		$	96,485		$	95,263
Allowance for loan losses / Total loans receivable	1.11		%	1.12		%	1.11		%	1.22		%
Allowance for loan losses / Non-performing loans	536		%	534		%	616		%	603		%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
	Sep 30, 2019			Jun 30, 2019			Dec 31, 2018			Sep 30, 2018
NON-PERFORMING ASSETS
Loans on non-accrual status:
Secured by real estate:
Commercial	$	5,092		$	4,603		$	4,088		$	3,728
Multifamily	87			—			—			—
Construction and land	1,318			2,214			3,188			2,095
One- to four-family	3,007			2,665			1,544			1,827
Commercial business	3,035			2,983			2,936			2,921
Agricultural business, including secured by farmland	757			1,359			1,751			1,645
Consumer	2,473			3,230			1,241			1,703
	15,769			17,054			14,748			13,919
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial	89			—			—			428
Construction and land	1,141			262			—			—
One- to four-family	652			995			658			1,076
Commercial business	358			1			1			87
Consumer	247			97			247			296
	2,487			1,355			906			1,887
Total non-performing loans	18,256			18,409			15,654			15,806
Real estate owned (REO)	228			2,513			2,611			364
Other repossessed assets	115			112			592			573
Total non-performing assets	$	18,599		$	21,034		$	18,857		$	16,743
Total non-performing assets to total assets	0.15		%	0.18		%	0.16		%	0.16		%
Purchased credit-impaired loans, net	$	12,575		$	12,945		$	14,413		$	12,944


	Quarters Ended									Nine Months Ended
REAL ESTATE OWNED	Sep 30, 2019			Jun 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018
Balance, beginning of period	$	2,513		$	2,611		$	473		$	2,611		$	360
Additions from loan foreclosures	48			61			—			109			502
Proceeds from dispositions of REO	(2,333		)	(150		)	(90		)	(2,483		)	(385		)
(Loss) gain on sale of REO	—			(9		)	8			(9		)	74
Valuation adjustments in the period	—			—			(27		)	—			(187		)
Balance, end of period	$	228		$	2,513		$	364		$	228		$	364


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

DEPOSIT COMPOSITION									Percentage Change
	Sep 30, 2019		Jun 30, 2019		Dec 31, 2018		Sep 30, 2018		Prior Qtr		Prior Yr Qtr

Non-interest-bearing	$	3,885,210	$	3,671,995	$	3,657,817	$	3,469,294	5.8	%	12.0	%
Interest-bearing checking	1,209,826		1,187,035		1,191,016		1,034,678		1.9	%	16.9	%
Regular savings accounts	1,863,839		1,848,048		1,842,581		1,627,560		0.9	%	14.5	%
Money market accounts	1,551,305		1,511,119		1,465,369		1,373,618		2.7	%	12.9	%
Total interest-bearing transaction and savings accounts	4,624,970		4,546,202		4,498,966		4,035,856		1.7	%	14.6	%
Total core deposits	8,510,180		8,218,197		8,156,783		7,505,150		3.6	%	13.4	%
Interest-bearing certificates	1,218,591		1,070,770		1,320,265		1,180,674		13.8	%	3.2	%
Total deposits	$	9,728,771	$	9,288,967	$	9,477,048	$	8,685,824	4.7	%	12.0	%

GEOGRAPHIC CONCENTRATION OF DEPOSITS											Percentage Change
	Sep 30, 2019				Jun 30, 2019		Dec 31, 2018		Sep 30, 2018		Prior Qtr		Prior Yr Qtr
	Amount		Percentage		Amount		Amount		Amount
Washington	$	5,833,547	60.0	%	$	5,503,280	$	5,674,328	$	4,849,807	6.0	%	20.3	%
Oregon	1,990,155		20.4	%	1,919,051		1,891,145		1,916,183		3.7	%	3.9	%
California	1,429,939		14.7	%	1,399,137		1,434,033		1,462,417		2.2	%	(2.2	)%
Idaho	475,130		4.9	%	467,499		477,542		457,417		1.6	%	3.9	%
Total deposits	$	9,728,771	100.0	%	$	9,288,967	$	9,477,048	$	8,685,824	4.7	%	12.0	%

INCLUDED IN TOTAL DEPOSITS	Sep 30, 2019		Jun 30, 2019		Dec 31, 2018		Sep 30, 2018
Public non-interest-bearing accounts	$	114,879	$	102,348	$	96,009	$	76,957
Public interest-bearing transaction & savings accounts	119,729		121,262		121,392		110,802
Public interest-bearing certificates	26,609		28,656		30,089		25,367
Total public deposits	$	261,217	$	252,266	$	247,490	$	213,126
Total brokered deposits	$	299,496	$	138,395	$	377,347	$	325,154


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 SEPTEMBER 30, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio

Banner Corporation-consolidated:
Total capital to risk-weighted assets	$	1,337,087	13.20	%	$	810,546	8.00	%	$	1,013,183	10.00	%
Tier 1 capital to risk-weighted assets	1,236,687		12.21	%	607,910		6.00	%	607,910		6.00	%
Tier 1 leverage capital to average assets	1,236,687		10.70	%	462,227		4.00	%	n/a		n/a
Common equity tier 1 capital to risk-weighted assets	1,100,687		10.86	%	455,932		4.50	%	n/a		n/a
Banner Bank:
Total capital to risk-weighted assets	1,248,269		12.56	%	795,040		8.00	%	993,800		10.00	%
Tier 1 capital to risk-weighted assets	1,150,328		11.58	%	596,280		6.00	%	795,040		8.00	%
Tier 1 leverage capital to average assets	1,150,328		10.21	%	450,496		4.00	%	563,120		5.00	%
Common equity tier 1 capital to risk-weighted assets	1,150,328		11.58	%	447,210		4.50	%	645,970		6.50	%
Islanders Bank:
Total capital to risk-weighted assets	36,470		18.97	%	15,379		8.00	%	19,223		10.00	%
Tier 1 capital to risk-weighted assets	34,066		17.72	%	11,534		6.00	%	15,379		8.00	%
Tier 1 leverage capital to average assets	34,066		11.68	%	11,662		4.00	%	14,577		5.00	%
Common equity tier 1 capital to risk-weighted assets	34,066		17.72	%	8,651		4.50	%	12,495		6.50	%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD	Quarters Ended
	September 30, 2019						June 30, 2019						September 30, 2018
	Average Balance		Interest and Dividends		Yield / Cost(3)		Average Balance		Interest and Dividends		Yield / Cost(3)		Average Balance		Interest and Dividends		Yield / Cost(3)
Interest-earning assets:
Held for sale loans	$	154,529	$	1,607	4.13	%	$	47,663	$	567	4.77	%	$	72,249	$	895	4.91	%
Mortgage loans	6,872,426		89,948		5.19	%	6,800,802		89,682		5.29	%	6,117,299		81,130		5.26	%
Commercial/agricultural loans	1,809,397		23,750		5.21	%	1,769,603		23,924		5.42	%	1,511,077		20,545		5.39	%
Consumer and other loans	173,342		2,791		6.39	%	179,693		2,834		6.33	%	141,503		2,298		6.44	%
Total loans(1)	9,009,694		118,096		5.20	%	8,797,761		117,007		5.33	%	7,842,128		104,868		5.31	%
Mortgage-backed securities	1,358,448		9,415		2.75	%	1,354,048		9,794		2.90	%	1,266,862		8,915		2.79	%
Other securities	414,994		3,058		2.92	%	448,721		3,310		2.96	%	462,048		3,279		2.82	%
Interest-bearing deposits with banks	82,836		489		2.34	%	53,955		340		2.53	%	65,191		332		2.02	%
FHLB stock	29,400		378		5.10	%	30,902		387		5.02	%	20,345		254		4.95	%
Total investment securities	1,885,678		13,340		2.81	%	1,887,626		13,831		2.94	%	1,814,446		12,780		2.79	%
Total interest-earning assets	10,895,372		131,436		4.79	%	10,685,387		130,838		4.91	%	9,656,574		117,648		4.83	%
Non-interest-earning assets	1,078,621						1,048,811						799,083
Total assets	$	11,973,993					$	11,734,198					$	10,455,657
Deposits:
Interest-bearing checking accounts	$	1,194,633	621		0.21	%	$	1,177,534	564		0.19	%	$	1,006,010	270		0.11	%
Savings accounts	1,854,967		2,244		0.48	%	1,851,913		2,119		0.46	%	1,631,158		1,002		0.24	%
Money market accounts	1,542,264		2,944		0.76	%	1,497,717		2,656		0.71	%	1,381,943		1,011		0.29	%
Certificates of deposit	1,155,710		4,205		1.44	%	1,105,844		3,684		1.34	%	1,153,403		3,234		1.11	%
Total interest-bearing deposits	5,747,574		10,014		0.69	%	5,633,008		9,023		0.64	%	5,172,514		5,517		0.42	%
Non-interest-bearing deposits	3,786,143		—		—	%	3,652,096		—		—	%	3,424,587		—		—	%
Total deposits	9,533,717		10,014		0.42	%	9,285,104		9,023		0.39	%	8,597,101		5,517		0.25	%
Other interest-bearing liabilities:
FHLB advances	476,435		3,107		2.59	%	514,703		3,370		2.63	%	249,896		1,388		2.20	%
Other borrowings	122,035		82		0.27	%	122,455		67		0.22	%	110,868		60		0.21	%
Junior subordinated debentures	140,212		1,612		4.56	%	140,212		1,683		4.81	%	140,212		1,605		4.54	%
Total borrowings	738,682		4,801		2.58	%	777,370		5,120		2.64	%	500,976		3,053		2.42	%
Total funding liabilities	10,272,399		14,815		0.57	%	10,062,474		14,143		0.56	%	9,098,077		8,570		0.37	%
Other non-interest-bearing liabilities(2)	163,809						151,436						85,485
Total liabilities	10,436,208						10,213,910						9,183,562
Shareholders' equity	1,537,785						1,520,288						1,272,095
Total liabilities and shareholders' equity	$	11,973,993					$	11,734,198					$	10,455,657
Net interest income/rate spread			$	116,621	4.22	%			$	116,695	4.35	%			$	109,078	4.46	%
Net interest margin					4.25	%					4.38	%					4.48	%
Additional Key Financial Ratios:
Return on average assets					1.31	%					1.36	%					1.43	%
Return on average equity					10.21	%					10.47	%					11.78	%
Average equity/average assets					12.84	%					12.96	%					12.17	%
Average interest-earning assets/average interest-bearing liabilities					167.98	%					166.69	%					170.21	%
Average interest-earning assets/average funding liabilities					106.06	%					106.19	%					106.14	%
Non-interest income/average assets					0.69	%					0.78	%					0.77	%
Non-interest expense/average assets					2.89	%					2.96	%					3.10	%
Efficiency ratio(4)					63.50	%					62.22	%					63.04	%
Adjusted efficiency ratio(5)					60.71	%					59.56	%					60.21	%

(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 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.
(5) Adjusted non-interest expense divided by adjusted revenue. Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments. Adjusted non-interest expense excludes acquisition-related expenses, amortization of core deposit intangibles (CDI), REO gain (loss), and state/municipal business and use taxes. These represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD	Nine Months Ended
	September 30, 2019						September 30, 2018
	Average Balance		Interest and Dividends		Yield/Cost(3)		Average Balance		Interest and Dividends		Yield/Cost(3)
Interest-earning assets:
Held for sale loans	$	100,273	$	3,295	4.39	%	$	81,244	$	2,871	4.72	%
Mortgage loans	6,835,861		268,232		5.25	%	6,058,535		231,703		5.11	%
Commercial/agricultural loans	1,761,222		70,486		5.35	%	1,482,377		57,348		5.17	%
Consumer and other loans	178,792		8,545		6.39	%	141,180		6,821		6.46	%
Total loans(1)	8,876,148		350,558		5.28	%	7,763,336		298,743		5.14	%
Mortgage-backed securities	1,368,081		29,716		2.90	%	1,196,282		25,145		2.81	%
Other securities	449,030		9,847		2.93	%	466,313		9,699		2.78	%
Interest-bearing deposits with banks	60,655		1,118		2.46	%	60,532		775		1.71	%
FHLB stock	30,679		1,031		4.49	%	19,722		529		3.59	%
Total investment securities	1,908,445		41,712		2.92	%	1,742,849		36,148		2.77	%
Total interest-earning assets	10,784,593		392,270		4.86	%	9,506,185		334,891		4.71	%
Non-interest-earning assets	1,053,180						802,915
Total assets	$	11,837,773					$	10,309,100
Deposits:
Interest-bearing checking accounts	$	1,175,521	1,660		0.19	%	$	1,020,457	797		0.10	%
Savings accounts	1,853,671		6,283		0.45	%	1,627,297		2,440		0.20	%
Money market accounts	1,510,293		7,851		0.70	%	1,414,513		2,469		0.23	%
Certificates of deposit	1,171,363		11,886		1.36	%	1,073,861		7,433		0.93	%
Total interest-bearing deposits	5,710,848		27,680		0.65	%	5,136,128		13,139		0.34	%
Non-interest-bearing deposits	3,682,047		—		—	%	3,344,312		—		—	%
Total deposits	9,392,895		27,680		0.39	%	8,480,440		13,139		0.21	%
Other interest-bearing liabilities:
FHLB advances	508,247		9,953		2.62	%	234,323		3,564		2.03	%
Other borrowings	120,847		209		0.23	%	105,700		179		0.23	%
Junior subordinated debentures	140,212		5,008		4.78	%	140,212		4,495		4.29	%
Total borrowings	769,306		15,170		2.64	%	480,235		8,238		2.29	%
Total funding liabilities	10,162,201		42,850		0.56	%	8,960,675		21,377		0.32	%
Other non-interest-bearing liabilities(2)	155,771						75,821
Total liabilities	10,317,972						9,036,496
Shareholders' equity	1,519,801						1,272,604
Total liabilities and shareholders' equity	$	11,837,773					$	10,309,100
Net interest income/rate spread			$	349,420	4.30	%			$	313,514	4.39	%
Net interest margin					4.33	%					4.41	%
Additional Key Financial Ratios:
Return on average assets					1.27	%					1.28	%
Return on average equity					9.91	%					10.40	%
Average equity/average assets					12.84	%					12.34	%
Average interest-earning assets/average interest-bearing liabilities					166.42	%					169.26	%
Average interest-earning assets/average funding liabilities					106.12	%					106.09	%
Non-interest income/average assets					0.70	%					0.82	%
Non-interest expense/average assets					2.98	%					3.19	%
Efficiency ratio(4)					64.23	%					65.33	%
Adjusted efficiency ratio(5)					61.17	%					63.79	%

(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 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.
(5) Adjusted non-interest expense divided by adjusted revenue. Adjusted revenue excludes net gain (loss) on sale of securities and fair value adjustments. Adjusted non-interest expense excludes acquisition-related expenses, amortization of CDI, REO gain (loss), and state/municipal business and use taxes. These represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

* Non-GAAP Financial Measures
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. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:

*ADJUSTED REVENUE*	Quarters Ended							Nine Months Ended
	Sep 30, 2019		Jun 30, 2019		Sep 30, 2018			Sep 30, 2019		Sep 30, 2018
Net interest income before provision for loan losses	$	116,621	$	116,695	$	109,078		$	349,420	$	313,514
Total non-interest income	20,866		22,676		20,411			61,667		62,990
Total GAAP revenue	137,487		139,371		129,489			411,087		376,504
Exclude net loss (gain) on sale of securities	2		28		—			29		(48		)
Exclude net change in valuation of financial instruments carried at fair value	69		114		(45		)	172		(3,577		)
Adjusted revenue (non-GAAP)	$	137,558	$	139,513	$	129,444		$	411,288	$	372,879


*ADJUSTED EARNINGS*	Quarters Ended									Nine Months Ended
	Sep 30, 2019			Jun 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018
Net income (GAAP)	$	39,577		$	39,700		$	37,773		$	112,623		$	98,987
Exclude net loss (gain) on sale of securities	2			28			—			29			(48		)
Exclude net change in valuation of financial instruments carried at fair value	69			114			(45		)	172			(3,577		)
Exclude acquisition-related expenses	676			301			1,005			3,125			1,005
Exclude related tax (benefit) expense	(179		)	(106		)	(126		)	(798		)	733
Total adjusted earnings (non-GAAP)	$	40,145		$	40,037		$	38,607		$	115,151		$	97,100

Diluted earnings per share (GAAP)	$	1.15		$	1.14		$	1.17		$	3.23		$	3.05
Diluted adjusted earnings per share (non-GAAP)	$	1.16		$	1.15		$	1.19		$	3.30		$	3.00


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
*ADJUSTED EFFICIENCY RATIO*	Quarters Ended									Nine Months Ended
	Sep 30, 2019			Jun 30, 2019			Sep 30, 2018			Sep 30, 2019			Sep 30, 2018
Non-interest expense (GAAP)	$	87,308		$	86,716		$	81,632		$	264,038		$	245,975
Exclude acquisition-related expenses	(676		)	(301		)	(1,005		)	(3,125		)	(1,005		)
Exclude CDI amortization	(1,985		)	(2,053		)	(1,348		)	(6,090		)	(4,112		)
Exclude state/municipal tax expense	(1,011		)	(1,007		)	(902		)	(2,963		)	(2,430		)
Exclude REO (loss) gain	(126		)	(260		)	(433		)	(263		)	(553		)
Adjusted non-interest expense (non-GAAP)	$	83,510		$	83,095		$	77,944		$	251,597		$	237,875

Net interest income before provision for loan losses (GAAP)	$	116,621		$	116,695		$	109,078		$	349,420		$	313,514
Non-interest income (GAAP)	20,866			22,676			20,411			61,667			62,990
Total revenue	137,487			139,371			129,489			411,087			376,504
Exclude net loss (gain) on sale of securities	2			28			—			29			(48		)
Exclude net change in valuation of financial instruments carried at fair value	69			114			(45		)	172			(3,577		)
Adjusted revenue (non-GAAP)	$	137,558		$	139,513		$	129,444		$	411,288		$	372,879

Efficiency ratio (GAAP)	63.50		%	62.22		%	63.04		%	64.23		%	65.33		%
Adjusted efficiency ratio (non-GAAP)	60.71		%	59.56		%	60.21		%	61.17		%	63.79		%

*TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS*	Sep 30, 2019			Jun 30, 2019			Dec 31, 2018			Sep 30, 2018
Shareholders' equity (GAAP)	$	1,530,935		$	1,521,055		$	1,478,595		$	1,272,198
Exclude goodwill and other intangible assets, net	365,764			367,749			372,078			261,158
Tangible common shareholders' equity (non-GAAP)	$	1,165,171		$	1,153,306		$	1,106,517		$	1,011,040

Total assets (GAAP)	$	12,097,842		$	11,847,374		$	11,871,317		$	10,514,303
Exclude goodwill and other intangible assets, net	365,764			367,749			372,078			261,158
Total tangible assets (non-GAAP)	$	11,732,078		$	11,479,625		$	11,499,239		$	10,253,145
Common shareholders' equity to total assets (GAAP)	12.65		%	12.84		%	12.46		%	12.10		%
Tangible common shareholders' equity to tangible assets (non-GAAP)	9.93		%	10.05		%	9.62		%	9.86		%

*TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE*
Tangible common shareholders' equity (non-GAAP)	$	1,165,171		$	1,153,306		$	1,106,517		$	1,011,040
Common shares outstanding at end of period	34,173,357			34,573,643			35,182,772			32,402,757
Common shareholders' equity (book value) per share (GAAP)	$	44.80		$	43.99		$	42.03		$	39.26
Tangible common shareholders' equity (tangible book value) per share (non-GAAP)	$	34.10		$	33.36		$	31.45		$	31.20

Source: Banner Corporation

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Banner Corporation Reports Net Income of $39.6 Million, or $1.15 Per Diluted Share, in Third Quarter 2019; Highlighted by Strong Core Deposit Growth

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