EX-99.1 2 banner8k102319exh991.htm EXHIBIT 99.1
Exhibit 99.1
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
PETER J. CONNER, CFO
 
(509) 527-3636
 
NEWS RELEASE
       
       
       

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

Walla Walla, WA - October 23, 2019 - 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.

BANR - Third Quarter 2019 Results
October 23, 2019
Page 2


*Tangible common shareholders' equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to 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

BANR - Third Quarter 2019 Results
October 23, 2019
Page 3


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

BANR - Third Quarter 2019 Results
October 23, 2019
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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.

BANR - Third Quarter 2019 Results
October 23, 2019
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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.


BANR - Third Quarter 2019 Results
October 23, 2019
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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
)

BANR - Third Quarter 2019 Results
October 23, 2019
Page 7


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.

BANR - Third Quarter 2019 Results
October 23, 2019
Page 8

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
%



BANR - Third Quarter 2019 Results
October 23, 2019
Page 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
  






BANR - Third Quarter 2019 Results
October 23, 2019
Page 10

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
%

BANR - Third Quarter 2019 Results
October 23, 2019
Page 11


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
  

BANR - Third Quarter 2019 Results
October 23, 2019
Page 12


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
  



BANR - Third Quarter 2019 Results
October 23, 2019
Page 13
             

ADDITIONAL FINANCIAL INFORMATION

                        
(dollars in thousands)
                        
   
Actual
  
Minimum to be
categorized as
"Adequately Capitalized"
  
Minimum to be
categorized as
"Well Capitalized"
REGULATORY CAPITAL RATIOS AS OF SEPTEMBER 30, 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
%



BANR - Third Quarter 2019 Results
October 23, 2019
Page 14

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.


BANR - Third Quarter 2019 Results
October 23, 2019
Page 15

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.


BANR - Third Quarter 2019 Results
October 23, 2019
Page 16

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
  

BANR - Third Quarter 2019 Results
October 23, 2019
Page 17

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