EX-99.1 2 releaseincludingtablesq1-2.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

irgrouplogoa01.jpg
bannebankcorplogolinea01.jpg
CONTACT:
MARK J. GRESCOVICH,
 
PRESIDENT & CEO
 
PETER J. CONNER, CFO
 
(509) 527-3636
 
NEWS RELEASE
 
 
 
 
 
 
 
 
 
 
 
 

Banner Corporation Reports Net Income of $33.3 Million, or $0.95 Per Diluted Share, in First Quarter 2019; Revenue Grows by 11% from First Quarter of 2018; Completion of Skagit Bank Integration Complemented by Good Core Deposit Growth

Walla Walla, WA - April 24, 2019 - Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income in the first quarter of 2019 was $33.3 million, or $0.95 per diluted share, compared to $37.5 million, or $1.09 per diluted share, in the preceding quarter and $28.8 million, or $0.89 per diluted share, in the first quarter of 2018. First quarter results include a $676,000 write-down on a former administration building as well as $2.1 million of acquisition related expenses, compared to $4.6 million of acquisition related expenses in the preceding quarter and no acquisition related expenses in the first quarter a year ago. In addition, fourth quarter 2018 profits included a $5.5 million benefit from the revaluation of the Company’s deferred tax asset.
“Our first quarter operating performance continued to reflect the success of our super community bank strategy, which produced solid revenue and additional low-cost core deposit growth,” stated Mark J. Grescovich, President and Chief Executive Officer. “During the quarter, we also benefited from the successful completion of the integration of the Skagit Bank acquisition, which further expands our presence in the growing communities of Northwest Washington. The acquisition of Skagit Bank added $916 million in assets and, after consolidation, six banking locations along the I-5 corridor from Seattle to the Canadian border.”
At March 31, 2019, Banner Corporation had $11.73 billion in assets, $8.60 billion in net loans and $9.38 billion in deposits. Banner operates 176 branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population.
First Quarter 2019 Highlights
•
Revenues were $134.2 million during the quarter ended March 31, 2019, compared to $138.5 million during the preceding quarter and increased 11% compared to $120.7 million during the first quarter a year ago.
•
Net interest income, before the provision for loan losses, was $116.1 million, compared to $117.5 million in the preceding quarter and increased 17% from $99.4 million in the first quarter a year ago.
•
Net interest margin was 4.37% for the current quarter, compared to 4.47% in the preceding quarter and 4.35% in the first quarter a year ago.
•
Net loans receivable increased modestly to $8.60 billion at March 31, 2019, compared to $8.59 billion at December 31, 2018 and increased 15% when compared to $7.46 billion at March 31, 2018.
•
Provision for loan losses was $2.0 million for the quarter, increasing the allowance for loan losses to $97.3 million, or 1.12% of total loans, as of March 31, 2019.
•
Core deposits increased 1% to $8.21 billion compared to the preceding quarter and increased 9% compared to a year ago. Core deposits represented 88% of total deposits at March 31, 2019.
•
Quarterly dividends to shareholders for the current quarter were $0.41 per share, an increase of 17% from the quarterly dividend for the first quarter a year ago.
•
Common shareholders’ equity per share increased to $42.99 at March 31, 2019, an increase of 2% from $42.03 at the preceding quarter end and an increase of 11% from $38.68 a year ago.  
•
Tangible common shareholders' equity per share* increased to $32.47 at March 31, 2019, an increase of 3% from $31.45 at the preceding quarter end and an increase of 6% from $30.54 a year ago.
•
Non-performing assets increased to $22.0 million, or 0.19% of total assets, at March 31, 2019, compared to $18.9 million, or 0.16% of total assets three months earlier, but decreased when compared to $23.5 million, or 0.23% of total assets, at March 31, 2018.

*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 revenue from core operations (which excludes fair value adjustments and 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 revenues from core operations) 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.


BANR - First Quarter 2019 Results
April 24, 2019
Page 2

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.
Recent Events
On November 1, 2018, Banner completed its acquisition of Skagit Bancorp, Inc. ("Skagit") and its wholly-owned subsidiary, Skagit Bank, of Burlington, Washington. As of the closing of the transaction, Skagit Bank had eleven retail branches along the I-5 corridor from Seattle to the Canadian border. Pursuant to the previously announced terms of the acquisition, Skagit shareholders received 5.6664 shares of Banner common stock in exchange for each share of Skagit common stock, plus cash in lieu of any fractional shares and to cancel Skagit stock options for a total consideration paid of $180.0 million.
The Skagit merger was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of Skagit were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date. The acquisition provided $915.8 million of assets, $632.4 million of loans, and $810.2 million of deposits to Banner.

Income Statement Review
“Our net interest margin increased slightly from a year ago and contracted during the quarter reflecting rising deposit costs and variability in the discount accretion on acquired loans,” said Grescovich. Banner's net interest margin was 4.37% for the first quarter of 2019, a ten basis-point decrease compared to 4.47% in the preceding quarter and a two basis-point improvement compared to 4.35% in the first quarter a year ago. Acquisition accounting adjustments added seven basis points to the net interest margin in the current quarter, compared to 12 basis points in the preceding quarter and eight basis points in the first quarter a year ago. The total purchase discount for acquired loans was $24.2 million at March 31, 2019, compared to $25.7 million at December 31, 2018 and $19.4 million at March 31, 2018.
Average interest-earning asset yields decreased one basis point to 4.89% compared to 4.90% for the preceding quarter and increased 30 basis points compared to 4.59% in the first quarter a year ago. Average loan yields decreased six basis points to 5.31% compared to 5.37% in the preceding quarter and increased 33 basis points compared to 4.98% in the first quarter a year ago. Loan discount accretion added nine basis points to loan yields in the first quarter of 2019, compared to 16 basis points in the preceding quarter and ten basis points in the first quarter a year ago. Deposit costs were 0.37% in the first quarter of 2019, a five basis-point increase compared to the preceding quarter and a 21 basis-point increase compared to the first quarter a year ago. The total cost of funds was 0.56% during the first quarter of 2019, a ten basis-point increase compared to the preceding quarter and a 31 basis-point increase compared to the first quarter a year ago, largely reflecting an increase in the cost of deposits and in FHLB advances.
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, compared to $2.5 million recorded in the prior quarter and $2.0 million in the same quarter a year ago.
Deposit fees and other service charges were $12.6 million in the first quarter of 2019, compared to $12.5 million in the preceding quarter and $11.3 million in the first quarter a year ago. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, were $3.4 million in the first quarter, compared to $6.0 million in the preceding quarter and $4.9 million in the first quarter of 2018. The lower fees reflected seasonal declines in multifamily and residential mortgage loan production combined with a compression in gain-on-sale spreads. Home purchase activity accounted for 80% of one- to four-family mortgage loan originations in the first quarter of 2019, compared to 78% in the prior quarter and 72% in the first quarter of 2018.
Banner’s first quarter 2019 results included an $11,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading and a $1,000 net gain on the sale of securities. In the preceding quarter, results included a $198,000 net gain for fair value adjustments and an $885,000 net loss on the sale of securities. In the first quarter a year ago, results included a $3.3 million net gain for fair value adjustments and a $4,000 net gain on the partial calls of securities.
Total revenues declined 3% to $134.2 million for the first quarter of 2019, compared to $138.5 million in the preceding quarter and increased 11% compared to $120.7 million in the first quarter a year ago. Revenues from core operations* (revenues excluding gains and losses on the sale of securities and the net change in valuation of financial instruments) were $134.2 million in the first quarter of 2019, compared to $139.2 million in the preceding quarter and $117.4 million in the first quarter of 2018.
Total non-interest income was $18.1 million in the first quarter of 2019, compared to $21.0 million in the fourth quarter of 2018 and $21.4 million in the first quarter a year ago. The decline in non-interest income was primarily attributed to lower mortgage banking revenues, specifically lower gains on multifamily loan sales, during the first quarter of 2019 compared to prior periods. In addition, fourth quarter 2018 miscellaneous non-interest income included $834,000 of non-recurring use tax refunds.
Banner’s total non-interest expense was $90.0 million in the first quarter of 2019, compared to $95.4 million in the preceding quarter and $81.7 million in the first quarter of 2018. Acquisition related expenses were $2.1 million for the first quarter of 2019, compared to $4.6 million for the preceding quarter and no acquisition related expenses for the year ago quarter. Banner’s efficiency ratio improved to 67.06% for the current quarter, compared to 68.89% in the preceding quarter and 67.67% in the year ago quarter. Banner’s adjusted efficiency ratio* was 63.32% for the current quarter, compared to 63.06% in the preceding quarter and 67.42% in the year ago quarter.


BANR - First Quarter 2019 Results
April 24, 2019
Page 3

For the first quarter of 2019, Banner recorded $8.9 million in state and federal income tax expense for an effective tax rate of 21.0%, reflecting in part 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. Fourth quarter 2018 income tax expense included a $5.5 million benefit from the revaluation of the company’s deferred tax asset.
Balance Sheet Review
Total assets were $11.73 billion at March 31, 2019, compared to $11.87 billion at December 31, 2018 and $10.32 billion at March 31, 2018. The total of securities and interest-bearing deposits held at other banks was $1.89 billion at March 31, 2019, compared to $1.94 billion at December 31, 2018 and $1.75 billion at March 31, 2018. The average effective duration of Banner's securities portfolio was approximately 3.0 years at March 31, 2019, compared to 3.9 years at March 31, 2018.
Net loans receivable increased modestly to $8.60 billion at March 31, 2019, compared to $8.59 billion at December 31, 2018 and increased 15% when compared to $7.46 billion at March 31, 2018. The year-over-year increase in net loans included $631.7 million of portfolio loans acquired in the Skagit acquisition during the preceding quarter. Commercial real estate and multifamily real estate loans increased modestly to $3.95 billion at March 31, 2019, compared to $3.93 billion at December 31, 2018, and increased 14% compared to $3.48 billion a year ago. Commercial business loans increased 3% to $1.52 billion at March 31, 2019, compared to $1.48 billion at December 31, 2018, and increased 18% compared to $1.30 billion a year ago. Agricultural business loans decreased by 8% to $373.3 million at March 31, 2019, compared to $404.9 million three months earlier and increased by 22% compared to $307.2 million a year ago. Total construction, land and land development loans decreased slightly to $1.10 billion at March 31, 2019, compared to $1.11 billion at December 31, 2018 and increased 16% compared to $948.7 million a year earlier. Consumer loans decreased slightly to $777.4 million at March 31, 2019, compared to $785.0 million at December 31, 2018 and increased 12% compared to $693.0 million a year ago. One- to four-family loans were $967.6 million at March 31, 2019, compared to $973.6 million at December 31, 2018 and increased 16% compared to $833.6 million a year ago.
Loans held for sale decreased substantially to $45.9 million at March 31, 2019, compared to $171.0 million at December 31, 2018 and $141.8 million at March 31, 2018. The volume of one- to four- family residential mortgage loans sold was $107.2 million in the current quarter, compared to $130.1 million in the preceding quarter and $124.5 million in the first quarter a year ago. During the first quarter of 2019, Banner sold $149.9 million in multifamily loans, compared to $26.8 million in the preceding quarter and no sales of multifamily loans in the first quarter a year ago.
Total deposits decreased slightly to $9.38 billion at March 31, 2019, compared to $9.48 billion at December 31, 2018 and increased 10% when compared to $8.54 billion a year ago, as the addition of both deposits from the Skagit acquisition and brokered certificates of deposit was partially offset by continuing declines in retail, or non-brokered, certificates of deposit. Non-interest-bearing account balances increased 1% to $3.68 billion at March 31, 2019, compared to $3.66 billion at December 31, 2018 and increased 9% compared to $3.38 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 1% from the prior quarter and increased 9% compared to a year ago. The core deposit balance at December 31, 2018 was positively impacted by $696.3 million of core deposits acquired in the Skagit acquisition. Core deposits represented 88% of total deposits at March 31, 2019, compared to 86% of total deposits three months earlier and 88% of total deposits a year earlier. Certificates of deposit decreased 12% to $1.16 billion at March 31, 2019, compared to $1.32 billion at December 31, 2018 and increased 14% compared to $1.02 billion a year earlier. Brokered deposits decreased to $239.4 million at March 31, 2019, compared to $377.3 million at December 31, 2018 and increased 41% when compared to $169.5 million a year earlier.
On January 1, 2019, Banner adopted Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842). In connection with the adoption of this ASU, Banner recorded a $51 million lease right of use asset and a $53 million lease liability. These amounts are presented in the Statement of Financial Condition in other assets and other liabilities.
At March 31, 2019, total common shareholders' equity was $1.51 billion, or 12.88% of assets, compared to $1.48 billion or 12.46% of assets at December 31, 2018 and $1.25 billion or 12.16% of assets a year ago. At March 31, 2018, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, was $1.14 billion, or 10.05% of tangible assets*, compared to $1.11 billion, or 9.62% of tangible assets, at December 31, 2018 and $990.2 million, or 9.85% of tangible assets, a year ago. Banner's tangible book value per share* increased to $32.47 at March 31, 2019, compared to $30.54 per share a year ago.
There were no repurchases of common stock during the first quarter of 2019. During the fourth quarter of 2018, Banner repurchased 325,000 shares of its common stock and during the first quarter of 2018, Banner repurchased 269,711 shares of its common stock . 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 March 31, 2019, Banner's common equity Tier 1 capital ratio was 12.53%, its Tier 1 leverage capital to average assets ratio was 10.73%, and its total capital to risk-weighted assets ratio was 13.55%.
Credit Quality
The allowance for loan losses was $97.3 million at March 31, 2019, or 1.12% of total loans outstanding and 504% of non-performing loans compared to $96.5 million at December 31, 2018, or 1.11% of total loans outstanding and 616% of non-performing loans, and $92.2 million at March 31, 2018, or 1.22% of total loans outstanding and 410% of non-performing loans. Net loan charge-offs totaled $1.2 million in the first quarter, compared to net loan charge-offs of $1.3 million in the preceding quarter and net loan recoveries of $1.2 million in the first 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, compared to $2.5 million recorded in the prior quarter and $2.0 million in the year ago quarter. Non-performing loans were $19.3 million at March 31, 2019, compared to $15.7 million at December 31, 2018 and $22.5 million a year ago. Real estate owned and other repossessed assets were $2.7 million at March 31, 2019, compared to $3.2 million at December 31, 2018 and $1.0 million a year ago. The increase compared to a year ago primarily reflects $2.6 million of real estate owned acquired in the Skagit acquisition.


BANR - First Quarter 2019 Results
April 24, 2019
Page 4

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for loan and lease losses is recorded for acquired loans at the acquisition date. At March 31, 2019, the total purchase discount for acquired loans was $24.2 million.
Banner's non-performing assets were $22.0 million, or 0.19% of total assets, at March 31, 2019, compared to $18.9 million, or 0.16% of total assets, at December 31, 2018, and $23.5 million, or 0.23% of total assets, a year ago. In addition to non-performing assets, purchased credit-impaired loans decreased to $13.3 million at March 31, 2019, when compared to $14.4 million at December 31, 2018, and $19.3 million at March 31, 2018.
Conference Call
Banner will host a conference call on Thursday, April 25, 2019, at 8:00 a.m. PDT, to discuss its first quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10129817, or at www.bannerbank.com.
About the Company
Banner Corporation is an $11.73 billion bank holding company operating two commercial banks in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.
Forward-Looking Statements
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "may," “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” "potential," or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner.  Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information.  By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner's operating and stock price performance.
Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: (1) expected revenues, cost savings, synergies and other benefits from the Skagit acquisition might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; (2) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, which could necessitate additional provisions for loan losses, resulting both from loans originated and loans acquired from other financial institutions; (3) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for loan losses or writing down of assets or impose restrictions or penalties with respect to Banner's activities; (4) competitive pressures among depository institutions; (5) interest rate movements and their impact on customer behavior and net interest margin; (6) the impact of repricing and competitors' pricing initiatives on loan and deposit products; (7) fluctuations in real estate values; (8) the ability to adapt successfully to technological changes to meet customers' needs and developments in the market place; (9) the ability to access cost-effective funding; (10) changes in financial markets; (11) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (12) the costs, effects and outcomes of litigation; (13) 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; (14) changes in accounting principles, policies or guidelines; (15) future acquisitions by Banner of other depository institutions or lines of business; (16) future goodwill impairment due to changes in Banner's business, changes in market conditions, or other factors and (17) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.


BANR - First Quarter 2019 Results
April 24, 2019
Page 5

RESULTS OF OPERATIONS
 
Quarters Ended
(in thousands except shares and per share data)
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
 
 
 
 
 
 
 
INTEREST INCOME:
 
 
 
 
 
 
Loans receivable
 
$
115,455

 
$
114,627

 
$
94,022

Mortgage-backed securities
 
10,507

 
9,931

 
7,331

Securities and cash equivalents
 
4,034

 
4,183

 
3,467

 
 
129,996

 
128,741

 
104,820

INTEREST EXPENSE:
 
 

 
 
 
 

Deposits
 
8,643

 
7,503

 
3,358

Federal Home Loan Bank advances
 
3,476

 
2,072

 
677

Other borrowings
 
60

 
66

 
70

Junior subordinated debentures
 
1,713

 
1,641

 
1,342

 
 
13,892

 
11,282

 
5,447

Net interest income before provision for loan losses
 
116,104

 
117,459

 
99,373

PROVISION FOR LOAN LOSSES
 
2,000

 
2,500

 
2,000

Net interest income
 
114,104

 
114,959

 
97,373

NON-INTEREST INCOME:
 
 

 
 
 
 

Deposit fees and other service charges
 
12,618

 
12,539

 
11,296

Mortgage banking operations
 
3,415

 
6,019

 
4,864

Bank-owned life insurance
 
1,276

 
994

 
853

Miscellaneous
 
804

 
2,153

 
1,037

 
 
18,113

 
21,705

 
18,050

Net gain (loss) on sale of securities
 
1

 
(885
)
 
4

Net change in valuation of financial instruments carried at fair value
 
11

 
198

 
3,308

Total non-interest income
 
18,125

 
21,018

 
21,362

NON-INTEREST EXPENSE:
 
 

 
 
 
 

Salary and employee benefits
 
54,640

 
52,122

 
50,067

Less capitalized loan origination costs
 
(4,849
)
 
(4,863
)
 
(4,011
)
Occupancy and equipment
 
13,766

 
13,490

 
11,766

Information / computer data services
 
5,326

 
5,112

 
4,381

Payment and card processing services
 
3,984

 
4,233

 
3,700

Professional and legal expenses
 
2,434

 
6,669

 
4,428

Advertising and marketing
 
1,529

 
2,588

 
1,830

Deposit insurance
 
1,418

 
1,093

 
1,341

State/municipal business and use taxes
 
945

 
854

 
713

Real estate operations
 
(123
)
 
251

 
439

Amortization of core deposit intangibles
 
2,052

 
1,935

 
1,382

Miscellaneous
 
6,744

 
7,310

 
5,670

 
 
87,866

 
90,794

 
81,706

Acquisition related expenses
 
2,148

 
4,602

 
—

Total non-interest expense
 
90,014

 
95,396

 
81,706

Income before provision for income taxes
 
42,215

 
40,581

 
37,029

PROVISION FOR INCOME TAXES
 
8,869

 
3,053

 
8,239

NET INCOME
 
$
33,346

 
$
37,528

 
$
28,790

Earnings per share available to common shareholders:
 
 

 
 
 
 

Basic
 
$
0.95

 
$
1.10

 
$
0.89

Diluted
 
$
0.95

 
$
1.09

 
$
0.89

Cumulative dividends declared per common share
 
$
0.41

 
$
0.38

 
$
0.35

Weighted average common shares outstanding:
 
 
 
 

 
 

Basic
 
35,050,376

 
34,221,048

 
32,397,568

Diluted
 
35,172,056

 
34,342,641

 
32,516,456

(Decrease) increase in common shares outstanding
 
(30,026
)
 
2,780,015

 
(302,812
)


BANR - First Quarter 2019 Results
April 24, 2019
Page 6

FINANCIAL  CONDITION
 
 
 
 
 
 
 
Percentage Change
(in thousands except shares and per share data)
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
218,458

 
$
231,029

 
$
188,418

 
(5.4
)%
 
15.9
 %
Interest-bearing deposits
 
43,080

 
41,167

 
53,630

 
4.6
 %
 
(19.7
)%
Total cash and cash equivalents
 
261,538

 
272,196

 
242,048

 
(3.9
)%
 
8.1
 %
Securities - trading
 
25,838

 
25,896

 
25,574

 
(0.2
)%
 
1.0
 %
Securities - available for sale
 
1,603,804

 
1,636,223

 
1,406,505

 
(2.0
)%
 
14.0
 %
Securities - held to maturity
 
218,993

 
234,220

 
262,645

 
(6.5
)%
 
(16.6
)%
Total securities
 
1,848,635

 
1,896,339

 
1,694,724

 
(2.5
)%
 
9.1
 %
Federal Home Loan Bank stock
 
27,063

 
31,955

 
18,036

 
(15.3
)%
 
50.0
 %
Loans held for sale
 
45,865

 
171,031

 
141,808

 
(73.2
)%
 
(67.7
)%
Loans receivable
 
8,692,657

 
8,684,595

 
7,556,046

 
0.1
 %
 
15.0
 %
Allowance for loan losses
 
(97,308
)
 
(96,485
)
 
(92,207
)
 
0.9
 %
 
5.5
 %
Net loans receivable
 
8,595,349

 
8,588,110

 
7,463,839

 
0.1
 %
 
15.2
 %
Accrued interest receivable
 
41,220

 
38,593

 
32,824

 
6.8
 %
 
25.6
 %
Real estate owned held for sale, net
 
2,611

 
2,611

 
328

 
—
 %
 
696.0
 %
Property and equipment, net
 
171,057

 
171,809

 
156,005

 
(0.4
)%
 
9.6
 %
Goodwill
 
339,154

 
339,154

 
242,659

 
—
 %
 
39.8
 %
Other intangibles, net
 
30,647

 
32,924

 
21,251

 
(6.9
)%
 
44.2
 %
Bank-owned life insurance
 
178,202

 
177,467

 
163,519

 
0.4
 %
 
9.0
 %
Other assets
 
188,302

 
149,128

 
140,223

 
26.3
 %
 
34.3
 %
Total assets
 
$
11,729,643

 
$
11,871,317

 
$
10,317,264

 
(1.2
)%
 
13.7
 %
LIABILITIES
 
 
 
 

 
 

 
 
 
 
Deposits:
 
 
 
 

 
 

 
 
 
 
Non-interest-bearing
 
$
3,676,984

 
$
3,657,817

 
$
3,383,439

 
0.5
 %
 
8.7
 %
Interest-bearing transaction and savings accounts
 
4,535,969

 
4,498,966

 
4,141,268

 
0.8
 %
 
9.5
 %
Interest-bearing certificates
 
1,163,276

 
1,320,265

 
1,018,355

 
(11.9
)%
 
14.2
 %
Total deposits
 
9,376,229

 
9,477,048

 
8,543,062

 
(1.1
)%
 
9.8
 %
Advances from Federal Home Loan Bank
 
418,000

 
540,189

 
192,195

 
(22.6
)%
 
117.5
 %
Customer repurchase agreements and other borrowings
 
121,719

 
118,995

 
101,844

 
2.3
 %
 
19.5
 %
Junior subordinated debentures at fair value
 
113,917

 
114,091

 
112,516

 
(0.2
)%
 
1.2
 %
Accrued expenses and other liabilities
 
148,027

 
102,061

 
72,497

 
45.0
 %
 
104.2
 %
Deferred compensation
 
40,560

 
40,338

 
41,027

 
0.6
 %
 
(1.1
)%
Total liabilities
 
10,218,452

 
10,392,722

 
9,063,141

 
(1.7
)%
 
12.7
 %
SHAREHOLDERS' EQUITY
 
 
 
 

 
 

 
 
 


Common stock
 
1,338,386

 
1,337,436

 
1,172,960

 
0.1
 %
 
14.1
 %
Retained earnings
 
152,911

 
134,055

 
79,773

 
14.1
 %
 
91.7
 %
Other components of shareholders' equity
 
19,894

 
7,104

 
1,390

 
180.0
 %
 
nm

Total shareholders' equity
 
1,511,191

 
1,478,595

 
1,254,123

 
2.2
 %
 
20.5
 %
Total liabilities and shareholders' equity
 
$
11,729,643

 
$
11,871,317

 
$
10,317,264

 
(1.2
)%
 
13.7
 %
Common Shares Issued:
 
 
 
 

 
 

 
 
 
 
Shares outstanding at end of period
 
35,152,746

 
35,182,772

 
32,423,673

 
 
 
 
Common shareholders' equity per share (1)
 
$
42.99

 
$
42.03

 
$
38.68

 
 
 
 
Common shareholders' tangible equity per share (1) (2)
 
$
32.47

 
$
31.45

 
$
30.54

 
 
 
 
Common shareholders' tangible equity to tangible assets (2)
 
10.05
%
 
9.62
%
 
9.85
%
 
 
 
 
Consolidated Tier 1 leverage capital ratio
 
10.73
%
 
10.98
%
 
11.09
%
 
 
 
 
(1)
Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.
(2)
Common shareholders' tangible equity excludes goodwill and other intangible assets.  Tangible assets exclude goodwill and other intangible assets.  These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of the press release tables.


BANR - First Quarter 2019 Results
April 24, 2019
Page 7

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
LOANS
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
$
1,442,724

 
$
1,430,097

 
$
1,278,814

 
0.9
 %
 
12.8
%
Investment properties
 
2,124,049

 
2,131,059

 
1,876,937

 
(0.3
)%
 
13.2
%
Multifamily real estate
 
387,142

 
368,836

 
321,039

 
5.0
 %
 
20.6
%
Commercial construction
 
181,888

 
172,410

 
163,314

 
5.5
 %
 
11.4
%
Multifamily construction
 
183,203

 
184,630

 
159,108

 
(0.8
)%
 
15.1
%
One- to four-family construction
 
514,468

 
534,678

 
434,204

 
(3.8
)%
 
18.5
%
Land and land development:
 
 
 
 
 
 

 
 
 
 
Residential
 
187,660

 
188,508

 
167,783

 
(0.4
)%
 
11.8
%
Commercial
 
28,928

 
27,278

 
24,331

 
6.0
 %
 
18.9
%
Commercial business
 
1,524,298

 
1,483,614

 
1,296,691

 
2.7
 %
 
17.6
%
Agricultural business including secured by farmland
 
373,322

 
404,873

 
307,243

 
(7.8
)%
 
21.5
%
One- to four-family real estate
 
967,581

 
973,616

 
833,598

 
(0.6
)%
 
16.1
%
Consumer:
 
 
 
 
 
 
 
 
 
 
Consumer secured by one- to four-family real estate
 
564,872

 
568,979

 
522,826

 
(0.7
)%
 
8.0
%
Consumer-other
 
212,522

 
216,017

 
170,158

 
(1.6
)%
 
24.9
%
Total loans receivable
 
$
8,692,657

 
$
8,684,595

 
$
7,556,046

 
0.1
 %
 
15.0
%
Restructured loans performing under their restructured terms
 
$
13,036

 
$
13,422

 
$
14,264

 
 
 
 
Loans 30 - 89 days past due and on accrual (1)
 
$
28,972

 
$
25,108

 
$
23,557

 
 
 
 
Total delinquent loans (including loans on non-accrual), net (2)
 
$
46,616

 
$
38,721

 
$
42,186

 
 
 
 
Total delinquent loans  /  Total loans receivable
 
0.54
%
 
0.45
%
 
0.56
%
 
 
 
 

(1) Includes no purchased credit-impaired loans at March 31, 2019 compared to $3,000 at December 31, 2018 and $1.5 million at March 31, 2018.
(2) Delinquent loans include $480,000 of delinquent purchased credit-impaired loans at March 31, 2019 compared to $519,000 at December 31, 2018 and $2.3 million at March 31, 2018.

LOANS BY GEOGRAPHIC LOCATION
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington
 
$
4,329,759

 
49.8%
 
$
4,324,588

 
$
3,490,646

 
0.1
 %
 
24.0
 %
Oregon
 
1,639,427

 
18.9%
 
1,636,152

 
1,580,278

 
0.2
 %
 
3.7
 %
California
 
1,581,654

 
18.2%
 
1,596,604

 
1,405,411

 
(0.9
)%
 
12.5
 %
Idaho
 
524,705

 
6.0%
 
521,026

 
481,972

 
0.7
 %
 
8.9
 %
Utah
 
59,940

 
0.7%
 
57,318

 
83,637

 
4.6
 %
 
(28.3
)%
Other
 
557,172

 
6.4%
 
548,907

 
514,102

 
1.5
 %
 
8.4
 %
Total loans receivable
 
$
8,692,657

 
100.0%
 
$
8,684,595

 
$
7,556,046

 
0.1
 %
 
15.0
 %





BANR - First Quarter 2019 Results
April 24, 2019
Page 8


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)


The following table shows loan originations (excluding loans held for sale) activity for the three months ending March 31, 2019, December 31, 2018, and March 31, 2018 (in thousands):
LOAN ORIGINATIONS
Three Months Ended
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Commercial real estate
$
94,196

 
$
172,885

 
$
65,725

Multifamily real estate
7,617

 
16,731

 
735

Construction and land
233,494

 
397,702

 
330,923

Commercial business
125,912

 
206,922

 
132,987

Agricultural business
32,059

 
18,901

 
26,574

One-to four-family residential
31,789

 
81,522

 
17,935

Consumer
63,774

 
72,500

 
70,533

Total loan originations (excluding loans held for sale)
$
588,841

 
$
967,163

 
$
645,412





BANR - First Quarter 2019 Results
April 24, 2019
Page 9

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
  Quarters Ended
CHANGE IN THE
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
Balance, beginning of period
 
$
96,485

 
$
95,263

 
$
89,028

Provision for loan losses
 
2,000

 
2,500

 
2,000

Recoveries of loans previously charged off:
 
 
 
 
 
 
Commercial real estate
 
21

 
66

 
1,352

Construction and land
 
22

 
23

 
174

One- to four-family real estate
 
43

 
18

 
290

Commercial business
 
23

 
193

 
170

Agricultural business, including secured by farmland
 
—

 
23

 
—

Consumer
 
110

 
102

 
112

 
 
219

 
425

 
2,098

Loans charged off:
 
 
 
 
 
 
Commercial real estate
 
(431
)
 
—

 
—

One- to four-family real estate
 
—

 
—

 
(16
)
Commercial business
 
(590
)
 
(684
)
 
(519
)
Agricultural business, including secured by farmland
 
(4
)
 
(415
)
 
(7
)
Consumer
 
(371
)
 
(604
)
 
(377
)
 
 
(1,396
)
 
(1,703
)
 
(919
)
Net (charge-offs) recoveries
 
(1,177
)
 
(1,278
)
 
1,179

Balance, end of period
 
$
97,308

 
$
96,485

 
$
92,207

Net (charge-offs) recoveries / Average loans receivable
 
(0.013
)%
 
(0.015
)%
 
0.015
%


ALLOCATION OF
 
 
 
 
 
 
ALLOWANCE FOR LOAN LOSSES
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Specific or allocated loss allowance:
 
 
 
 
 
 
Commercial real estate
 
$
27,091

 
$
27,132

 
$
23,461

Multifamily real estate
 
4,020

 
3,818

 
2,592

Construction and land
 
23,713

 
24,442

 
28,766

One- to four-family real estate
 
4,711

 
4,714

 
3,779

Commercial business
 
18,662

 
19,438

 
19,885

Agricultural business, including secured by farmland
 
3,596

 
3,778

 
2,999

Consumer
 
7,980

 
7,972

 
5,514

Total allocated
 
89,773

 
91,294

 
86,996

Unallocated
 
7,535

 
5,191

 
5,211

Total allowance for loan losses
 
$
97,308

 
$
96,485

 
$
92,207

Allowance for loan losses / Total loans receivable
 
1.12
%
 
1.11
%
 
1.22
%
Allowance for loan losses / Non-performing loans
 
504
%
 
616
%
 
410
%





BANR - First Quarter 2019 Results
April 24, 2019
Page 10



ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
NON-PERFORMING ASSETS
 
 
 
 
 
Loans on non-accrual status:
 
 
 
 
 
Secured by real estate:
 
 
 
 
 
Commercial
$
5,734

 
$
4,088

 
$
6,877

Construction and land
3,036

 
3,188

 
984

One- to four-family
1,538

 
1,544

 
2,815

Commercial business
3,614

 
2,936

 
3,037

Agricultural business, including secured by farmland
2,507

 
1,751

 
6,120

Consumer
2,181

 
1,241

 
1,237

 
18,610

 
14,748

 
21,070

Loans more than 90 days delinquent, still on accrual:
 
 
 

 
 

Secured by real estate:
 
 
 

 
 

One- to four-family
640

 
658

 
591

Commercial business
1

 
1

 
1

Agricultural business, including secured by farmland
—

 
—

 
820

Consumer
42

 
247

 
7

 
683

 
906

 
1,419

Total non-performing loans
19,293

 
15,654

 
22,489

Real estate owned (REO)
2,611

 
2,611

 
328

Other repossessed assets
50

 
592

 
694

Total non-performing assets
$
21,954

 
$
18,857

 
$
23,511

Total non-performing assets to total assets
0.19
%
 
0.16
%
 
0.23
%
Purchased credit-impaired loans, net
$
13,330

 
$
14,413

 
$
19,316


 
Quarters Ended
REAL ESTATE OWNED
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Balance, beginning of period
$
2,611

 
$
364

 
$
360

Additions from loan foreclosures
—

 
139

 
128

Additions from acquisitions
—

 
2,593

 
—

Proceeds from dispositions of REO
—

 
(453
)
 
—

Gain on sale of REO
—

 
168

 
—

Valuation adjustments in the period
—

 
(200
)
 
(160
)
Balance, end of period
$
2,611

 
$
2,611

 
$
328




BANR - First Quarter 2019 Results
April 24, 2019
Page 11




ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEPOSIT COMPOSITION
 
 
 
 
 
 
 
Percentage Change
 
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
 
$
3,676,984

 
$
3,657,817

 
$
3,383,439

 
0.5
 %
 
8.7
%
Interest-bearing checking
 
1,174,169

 
1,191,016

 
1,043,840

 
(1.4
)%
 
12.5
%
Regular savings accounts
 
1,865,852

 
1,842,581

 
1,637,814

 
1.3
 %
 
13.9
%
Money market accounts
 
1,495,948

 
1,465,369

 
1,459,614

 
2.1
 %
 
2.5
%
Total interest-bearing transaction and savings accounts
 
4,535,969

 
4,498,966

 
4,141,268

 
0.8
 %
 
9.5
%
Total core deposits
 
8,212,953

 
8,156,783

 
7,524,707

 
0.7
 %
 
9.1
%
Interest-bearing certificates
 
1,163,276

 
1,320,265

 
1,018,355

 
(11.9
)%
 
14.2
%
Total deposits
 
$
9,376,229

 
$
9,477,048

 
$
8,543,062

 
(1.1
)%
 
9.8
%


GEOGRAPHIC CONCENTRATION OF DEPOSITS
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
 
 
 
Washington
 
$
5,604,567

 
59.8%
 
$
5,674,328

 
$
4,766,646

 
(1.2
)%
 
17.6
 %
Oregon
 
1,906,132

 
20.3%
 
1,891,145

 
1,868,043

 
0.8
 %
 
2.0
 %
California
 
1,402,213

 
15.0%
 
1,434,033

 
1,454,421

 
(2.2
)%
 
(3.6
)%
Idaho
 
463,317

 
4.9%
 
477,542

 
453,952

 
(3.0
)%
 
2.1
 %
Total deposits
 
$
9,376,229

 
100.0%
 
$
9,477,048

 
$
8,543,062

 
(1.1
)%
 
9.8
 %


INCLUDED IN TOTAL DEPOSITS
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Public non-interest-bearing accounts
 
$
92,122

 
$
96,009

 
$
78,714

Public interest-bearing transaction & savings accounts
 
118,033

 
121,392

 
111,597

Public interest-bearing certificates
 
29,572

 
30,089

 
24,928

Total public deposits
 
$
239,727

 
$
247,490

 
$
215,239

Total brokered deposits
 
$
239,444

 
$
377,347

 
$
169,523




 
 
 
 
 
 
 



BANR - First Quarter 2019 Results
April 24, 2019
Page 12

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

Fair value of common shares issued
 
179,709

Total consideration
 
180,038

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

 
Securities
210,326

 
Loans receivable
632,374

 
Real estate owned held for sale
2,593

 
Property and equipment
15,788

 
Core deposit intangible
16,368

 
Deferred tax asset
95

 
Other assets
19,110

 
Total assets acquired
915,821

 
 
 
 
Fair value of liabilities assumed:
 
 
Deposits
810,209

 
Other liabilities
22,069

 
Total liabilities assumed
832,278

 
 
 
 
Net assets acquired
 
83,543

 
 
 
Goodwill
 
$
96,495

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




BANR - First Quarter 2019 Results
April 24, 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 MARCH 31, 2019
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Banner Corporation-consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
      Total capital to risk-weighted assets
 
$
1,323,711

 
13.55
%
 
$
781,580

 
8.00
%
 
$
976,975

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,223,804

 
12.53
%
 
586,185

 
6.00
%
 
586,185

 
6.00
%
      Tier 1 leverage capital to average assets
 
1,223,804

 
10.73
%
 
456,375

 
4.00
%
 
n/a

 
n/a

      Common equity tier 1 capital to risk-weighted assets
 
1,087,804

 
11.13
%
 
439,639

 
4.50
%
 
n/a

 
n/a

Banner Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
1,236,021

 
12.91
%
 
766,195

 
8.00
%
 
957,744

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,138,596

 
11.89
%
 
574,646

 
6.00
%
 
766,195

 
8.00
%
      Tier 1 leverage capital to average assets
 
1,138,596

 
10.23
%
 
445,258

 
4.00
%
 
556,572

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
1,138,596

 
11.89
%
 
430,985

 
4.50
%
 
622,534

 
6.50
%
Islanders Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
35,180

 
18.44
%
 
15,262

 
8.00
%
 
19,077

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
32,794

 
17.19
%
 
11,446

 
6.00
%
 
15,262

 
8.00
%
      Tier 1 leverage capital to average assets
 
32,794

 
11.86
%
 
11,065

 
4.00
%
 
13,831

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
32,794

 
17.19
%
 
8,585

 
4.50
%
 
12,400

 
6.50
%





BANR - First Quarter 2019 Results
April 24, 2019
Page 14

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
March 31, 2019
 
December 31, 2018
 
March 31, 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
$
98,005

$
1,121

4.64
%
 
$
83,741

$
1,056

5.00
%
 
$
58,669

$
681

4.71
%
Mortgage loans
6,833,933

88,602

5.26
%
 
6,573,278

88,560

5.35
%
 
6,006,530

73,665

4.97
%
Commercial/agricultural loans
1,703,503

22,812

5.43
%
 
1,631,133

22,257

5.41
%
 
1,456,303

17,423

4.85
%
Consumer and other loans
183,451

2,920

6.46
%
 
172,934

2,754

6.32
%
 
140,627

2,253

6.50
%
Total loans(1)
8,818,892

115,455

5.31
%
 
8,461,086

114,627

5.37
%
 
7,662,129

94,022

4.98
%
Mortgage-backed securities
1,392,118

10,507

3.06
%
 
1,400,508

9,931

2.81
%
 
1,057,878

7,331

2.81
%
Other securities
484,134

3,479

2.91
%
 
474,659

3,633

3.04
%
 
462,947

3,090

2.71
%
Interest-bearing deposits with banks
44,757

289

2.62
%
 
54,577

305

2.22
%
 
64,512

231

1.45
%
FHLB stock
31,761

266

3.40
%
 
22,791

245

4.26
%
 
16,549

146

3.58
%
Total investment securities
1,952,770

14,541

3.02
%
 
1,952,535

14,114

2.87
%
 
1,601,886

10,798

2.73
%
Total interest-earning assets
10,771,662

129,996

4.89
%
 
10,413,621

128,741

4.90
%
 
9,264,015

104,820

4.59
%
Non-interest-earning assets
1,031,591

 
 
 
903,165

 
 
 
805,503

 
 
Total assets
$
11,803,253

 
 
 
$
11,316,786

 
 
 
$
10,069,518

 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
$
1,153,949

475

0.17
%
 
$
1,131,030

403

0.14
%
 
$
1,003,929

246

0.10
%
Savings accounts
1,854,123

1,920

0.42
%
 
1,779,288

1,505

0.34
%
 
1,601,671

627

0.16
%
Money market accounts
1,490,326

2,251

0.61
%
 
1,440,889

1,638

0.45
%
 
1,442,685

666

0.19
%
Certificates of deposit
1,253,613

3,997

1.29
%
 
1,287,114

3,957

1.22
%
 
998,738

1,819

0.74
%
Total interest-bearing deposits
5,752,011

8,643

0.61
%
 
5,638,321

7,503

0.53
%
 
5,047,023

3,358

0.27
%
Non-interest-bearing deposits
3,605,922

—

—
%
 
3,608,930

—

—
%
 
3,282,686

—

—
%
Total deposits
9,357,933

8,643

0.37
%
 
9,247,251

7,503

0.32
%
 
8,329,709

3,358

0.16
%
Other interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
FHLB advances
534,238

3,476

2.64
%
 
311,046

2,072

2.64
%
 
155,540

677

1.77
%
Other borrowings
118,008

60

0.21
%
 
117,724

66

0.22
%
 
101,111

70

0.28
%
Junior subordinated debentures
140,212

1,713

4.95
%
 
140,212

1,641

4.64
%
 
140,212

1,342

3.88
%
Total borrowings
792,458

5,249

2.69
%
 
568,982

3,779

2.64
%
 
396,863

2,089

2.13
%
Total funding liabilities
10,150,391

13,892

0.56
%
 
9,816,233

11,282

0.46
%
 
8,726,572

5,447

0.25
%
Other non-interest-bearing liabilities(2)
151,937

 
 
 
92,003

 
 
 
65,978

 
 
Total liabilities
10,302,328

 
 
 
9,908,236

 
 
 
8,792,550

 
 
Shareholders' equity
1,500,925

 
 
 
1,408,550

 
 
 
1,276,968

 
 
Total liabilities and shareholders' equity
$
11,803,253

 
 
 
$
11,316,786

 
 
 
$
10,069,518

 
 
Net interest income/rate spread
 
$
116,104

4.33
%
 
 
$
117,459

4.44
%
 
 
$
99,373

4.34
%
Net interest margin
 
 
4.37
%
 
 
 
4.47
%
 
 
 
4.35
%
Additional Key Financial Ratios:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
 
1.15
%
 
 
 
1.32
%
 
 
 
1.16
%
Return on average equity
 
 
9.01
%
 
 
 
10.57
%
 
 
 
9.14
%
Average equity/average assets
 
 
12.72
%
 
 
 
12.45
%
 
 
 
12.68
%
Average interest-earning assets/average interest-bearing liabilities
 
 
164.59
%
 
 
 
167.76
%
 
 
 
170.17
%
Average interest-earning assets/average funding liabilities
 
 
106.12
%
 
 
 
106.09
%
 
 
 
106.16
%
Non-interest income/average assets
 
 
0.62
%
 
 
 
0.74
%
 
 
 
0.86
%
Non-interest expense/average assets
 
 
3.09
%
 
 
 
3.34
%
 
 
 
3.29
%
Efficiency ratio(4)
 
 
67.06
%
 
 
 
68.89
%
 
 
 
67.67
%
Adjusted efficiency ratio(5)
 
 
63.32
%
 
 
 
63.06
%
 
 
 
67.42
%
(1) 
Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2) 
Average other non-interest-bearing liabilities include fair value adjustments related to FHLB advances and junior subordinated debentures.
(3) 
Yields and costs have not been adjusted for the effect of tax-exempt interest.
(4) 
Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(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 expense, 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 - First Quarter 2019 Results
April 24, 2019
Page 15

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:
 
 
 
 
 
 
REVENUE FROM CORE OPERATIONS
Quarters Ended
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Net interest income before provision for loan losses
$
116,104

 
$
117,459

 
$
99,373

Total non-interest income
18,125

 
21,018

 
21,362

Total GAAP revenue
134,229

 
138,477

 
120,735

Exclude net (gain) loss on sale of securities
(1
)
 
885

 
(4
)
Exclude change in valuation of financial instruments carried at fair value
(11
)
 
(198
)
 
(3,308
)
Revenue from core operations (non-GAAP)
$
134,217

 
$
139,164

 
$
117,423



EARNINGS FROM CORE OPERATIONS
 
Quarters Ended
 
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Net income (GAAP)
 
$
33,346

 
$
37,528

 
$
28,790

 Exclude net (gain) loss on sale of securities
 
(1
)
 
885

 
(4
)
Exclude change in valuation of financial instruments carried at fair value
 
(11
)
 
(198
)
 
(3,308
)
Exclude acquisition related expenses
 
2,148

 
4,602

 
—

Exclude related tax (benefit) expense
 
(513
)
 
(1,159
)
 
795

Exclude tax adjustments related to tax reform and valuation reserves
 
—

 
(4,207
)
 
—

Total earnings from core operations (non-GAAP)
 
$
34,969

 
$
37,451

 
$
26,273

 
 
 
 
 
 
 
Diluted earnings per share (GAAP)
 
$
0.95

 
$
1.09

 
$
0.89

Diluted core earnings per share (non-GAAP)
 
$
0.99

 
$
1.09

 
$
0.81




BANR - First Quarter 2019 Results
April 24, 2019
Page 16

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
ADJUSTED EFFICIENCY RATIO
 
Quarters Ended
 
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Non-interest expense (GAAP)
 
$
90,014

 
$
95,396

 
$
81,706

Exclude acquisition related expenses
 
(2,148
)
 
(4,602
)
 
—

Exclude CDI amortization
 
(2,052
)
 
(1,935
)
 
(1,382
)
Exclude state/municipal tax expense
 
(945
)
 
(854
)
 
(713
)
Exclude REO gain (loss)
 
123

 
(251
)
 
(439
)
Adjusted non-interest expense (non-GAAP)
 
$
84,992

 
$
87,754

 
$
79,172

 
 
 
 
 
 
 
Net interest income before provision for loan losses (GAAP)
 
$
116,104

 
$
117,459

 
$
99,373

Non-interest income (GAAP)
 
18,125

 
21,018

 
21,362

Total revenue
 
134,229

 
138,477

 
120,735

Exclude net (gain) loss on sale of securities
 
(1
)
 
885

 
(4
)
Exclude net change in valuation of financial instruments carried at fair value
 
(11
)
 
(198
)
 
(3,308
)
Revenue from core operations (non-GAAP)
 
$
134,217

 
$
139,164

 
$
117,423

 
 
 
 
 
 
 
Efficiency ratio (GAAP)
 
67.06
%
 
68.89
%
 
67.67
%
Adjusted efficiency ratio (non-GAAP)
 
63.32
%
 
63.06
%
 
67.42
%

TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS
 
Mar 31, 2019
 
Dec 31, 2018
 
Mar 31, 2018
Shareholders' equity (GAAP)
 
$
1,511,191

 
$
1,478,595

 
$
1,254,123

Exclude goodwill and other intangible assets, net
 
369,801

 
372,078

 
263,910

Tangible common shareholders' equity (non-GAAP)
 
$
1,141,390

 
$
1,106,517

 
$
990,213

 
 
 
 
 
 
 
Total assets (GAAP)
 
$
11,729,643

 
$
11,871,317

 
$
10,317,264

Exclude goodwill and other intangible assets, net
 
369,801

 
372,078

 
263,910

Total tangible assets (non-GAAP)
 
$
11,359,842

 
$
11,499,239

 
$
10,053,354

Common shareholders' equity to total assets (GAAP)
 
12.88
%
 
12.46
%
 
12.16
%
Tangible common shareholders' equity to tangible assets (non-GAAP)
 
10.05
%
 
9.62
%
 
9.85
%
 
 
 
 
 
 
 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
 
 
 
 
 
 
Tangible common shareholders' equity
 
$
1,141,390

 
$
1,106,517

 
$
990,213

Common shares outstanding at end of period
 
35,152,746

 
35,182,772

 
32,423,673

Common shareholders' equity (book value) per share (GAAP)
 
$
42.99

 
$
42.03

 
$
38.68

Tangible common shareholders' equity (tangible book value) per share (non-GAAP)
 
$
32.47

 
$
31.45

 
$
30.54