EX-99.1 2 releaseincludingtablesq2-2.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

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

Banner Corporation Reports Net Income of $39.7 Million, or $1.14 Per Diluted Share, in Second Quarter 2019;
Results Highlighted by 10% Year-Over-Year Revenue Growth and Improved Operating Efficiencies

Walla Walla, WA - July 24, 2019 - Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income increased 19% to $39.7 million, or $1.14 per diluted share, in the second quarter of 2019, compared to $33.3 million, or $0.95 per diluted share, in the preceding quarter and increased by 22% when compared to $32.4 million, or $1.00 per diluted share, in the second quarter of 2018. Second quarter of 2019 results include $301,000 of acquisition-related expenses. In the preceding quarter, Banner’s results included a $676,000 write-down on a former administration building as well as $2.1 million of acquisition-related expenses. In the second quarter of 2018 there were no acquisition-related expenses. In the first six months of 2019, net income increased 19% to $73.0 million, or $2.09 per diluted share, compared to $61.2 million, or $1.89 per diluted share, in the first six months a year ago.
“Banner’s second quarter financial results demonstrate the effectiveness of our strategic plan and the success of our super community bank model,” stated Mark J. Grescovich, President and Chief Executive Officer. “Our operating performance generated solid revenue growth with increases in both net interest income and non-interest income compared to both the preceding quarter and the same quarter last year. The ongoing benefits of the Skagit Bank acquisition also contributed to profitability, as expenses declined through the realization of synergies from the transaction.”
At June 30, 2019, Banner Corporation had $11.85 billion in assets, $8.65 billion in net loans and $9.29 billion in deposits. Banner operates 176 branch offices, including branch offices located in eight of the top 20 largest western Metropolitan Statistical Areas by population. The acquisition of Skagit Bancorp, Inc. and its wholly-owned subsidiary, Skagit Bank, (collectively "Skagit") on November 1, 2018, added $916 million in assets and, after consolidation, six banking locations along the I-5 corridor from Seattle to the Canadian border.
Second Quarter 2019 Highlights
•
Revenues increased 4% to $139.4 million during the second quarter of 2019, compared to $134.2 million in the preceding quarter and increased 10% compared to $126.3 million in the second quarter a year ago.
•
Net interest income, before the provision for loan losses, was $116.7 million, compared to $116.1 million in the preceding quarter and increased 11% from $105.1 million in the second quarter a year ago.
•
Net interest margin was 4.38% for the current quarter, compared to 4.37% in the preceding quarter and 4.39% in the second quarter a year ago.
•
Total cost of funds of 56 basis points was unchanged compared with the prior quarter.
•
Return on average assets was 1.36% in the current quarter compared to 1.15% in the preceding quarter and 1.25% in the second quarter a year ago.
•
Net loans receivable increased to $8.65 billion at June 30, 2019, compared to $8.60 billion at March 31, 2019 and increased 14% when compared to $7.59 billion at June 30, 2018.
•
Provision for loan losses was $2.0 million for the quarter, increasing the allowance for loan losses to $98.3 million, or 1.12% of total loans receivable, as of June 30, 2019.
•
Core deposits increased slightly to $8.22 billion compared to $8.21 billion at March 31, 2019 and increased 11% compared to a year ago. Core deposits represented 88% of total deposits at June 30, 2019.
•
Quarterly dividends to shareholders for the current quarter were $0.41 per share.
•
Common shareholders’ equity per share increased to $43.99 at June 30, 2019, an increase of 2% from $42.99 at the preceding quarter end and an increase of 14% from $38.67 a year ago.
•
Tangible common shareholders' equity per share* increased to $33.36 at June 30, 2019, an increase of 3% from $32.47 at the preceding quarter end and an increase of 9% from $30.57 a year ago.
•
Repurchased 600,000 shares of common stock at an average cost of $53.46 per share.
•
Non-performing assets remained low at $21.0 million, or 0.18% of total assets, at June 30, 2019, compared to $22.0 million, or 0.19% of total assets three months earlier, and $16.5 million, or 0.16% of total assets, at June 30, 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 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 revenues from core operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these


BANR -Second Quarter 2019 Results
July 24, 2019
Page 2

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.
Income Statement Review
Banner's net interest margin was 4.38% for the second quarter of 2019, a one basis-point increase compared to 4.37% in the preceding quarter and a one basis-point decrease compared to 4.39% in the second quarter a year ago. Acquisition accounting adjustments added seven basis points to the net interest margin in both the current quarter and the preceding quarter compared to six basis points in the second quarter a year ago. The total purchase discount for acquired loans was $22.6 million at June 30, 2019, compared to $24.2 million at March 31, 2019 and $18.1 million at June 30, 2018. In the first six months of the year, Banner’s net interest margin was 4.38% compared to 4.37% in the first six months of 2018.
Average interest-earning asset yields increased two basis points to 4.91% compared to 4.89% for the preceding quarter and increased 21 basis points compared to 4.70% in the second quarter a year ago. Average loan yields increased two basis points to 5.33% compared to 5.31% in the preceding quarter and increased 18 basis points compared to 5.15% in the second quarter a year ago. Loan discount accretion added nine basis points to loan yields in both the second quarter of 2019 and the preceding quarter, compared to eight basis points in the second quarter a year ago. Deposit costs were 0.39% in the second quarter of 2019, a two basis-point increase compared to the preceding quarter and a 19 basis-point increase compared to the second quarter a year ago. The total cost of funds was 0.56% during the second quarter of 2019, unchanged compared to the preceding quarter and a 23 basis-point increase compared to the second quarter a year ago, largely reflecting an increase in the cost of deposits and in FHLB advances.
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 $22.7 million in the second quarter of 2019, compared to $18.1 million in the first quarter of 2019 and $21.2 million in the second quarter a year ago. Deposit fees and other service charges were $14.0 million in the second quarter of 2019, compared to $12.6 million in the preceding quarter and $12.0 million in the second quarter a year ago. The increase in deposit fees and other service charges during the current quarter compared to the prior quarter was primarily due to seasonal increases in interchange fee income; the increase over the prior year period reflects an overall increase in deposit accounts including those acquired from the Skagit acquisition. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $5.9 million in the second quarter, compared to $3.4 million in the preceding quarter and $4.6 million in the second quarter of 2018. The higher mortgage banking revenue reflected an increase in residential and multifamily mortgage held-for-sale loan production. Home purchase activity accounted for 81% of one- to four-family mortgage loan originations in the second quarter of 2019, compared to 80% in the prior quarter and 81% in the second quarter of 2018. In the first six months of 2019, total non-interest income was $40.8 million, compared to $42.6 million in the first six months of 2018.
Banner’s second quarter 2019 results included a $114,000 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 $28,000 net loss on the sale of securities. In the preceding quarter, results included an $11,000 net gain for fair value adjustments and a $1,000 net gain on the sale of securities. In the second quarter a year ago, results included a $224,000 net gain for fair value adjustments and a $44,000 net gain on the sale of securities.
Total revenues increased 4% to $139.4 million for the second quarter of 2019, compared to $134.2 million in the preceding quarter and increased 10% compared to $126.3 million in the second quarter a year ago. Year-to-date, total revenues increased 11% to $273.6 million compared to $247.0 million for the same period one year earlier. Revenues from core operations* (revenues excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) were $139.5 million in the second quarter of 2019, compared to $134.2 million in the preceding quarter and $126.0 million in the second quarter of 2018. In the first six months of the year, revenues from core operations* were $273.7 million, compared to $243.4 million in the first six months of 2018.
Banner’s total non-interest expense was $86.7 million in the second quarter of 2019, compared to $90.0 million in the preceding quarter and $82.6 million in the second quarter of 2018. The decrease in non-interest expense during the current quarter reflects the first full quarter of synergies from the integration and consolidation of the Skagit systems and operations. In addition, the decrease in acquisition-related expenses, which were $301,000 for the second quarter of 2019, compared to $2.1 million for the preceding quarter, contributed to the decrease in non-interest expense for the quarter. There were no acquisition-related expenses for the year ago quarter. Higher loan originations and annual updates to our loan deferred origination cost models resulted in a $2.6 million increase in capitalized loan origination costs, offsetting increases in salary and benefits driven by increased commissions on loan originations. Year-to-date, total non-interest expense was $176.7 million, compared to $164.3 million in the same period a year earlier. Banner’s efficiency ratio improved to 62.22% for the current quarter, compared to 67.06% in the preceding quarter and 65.44% in the year ago quarter. Banner’s adjusted efficiency ratio* was 59.56% for the current quarter, compared to 63.32% in the preceding quarter and 64.09% in the year ago quarter.
For the second quarter of 2019, Banner recorded $11.0 million in state and federal income tax expense for an effective tax rate of 21.6%, 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.


BANR -Second Quarter 2019 Results
July 24, 2019
Page 3

Balance Sheet Review
Total assets increased to $11.85 billion at June 30, 2019, compared to $11.74 billion at March 31, 2019 and $10.38 billion at June 30, 2018. The total of securities and interest-bearing deposits held at other banks was $1.85 billion at June 30, 2019, compared to $1.89 billion at March 31, 2019 and $1.74 billion at June 30, 2018. The average effective duration of Banner's securities portfolio was approximately 2.6 years at June 30, 2019, compared to 4.0 years at June 30, 2018.
Net loans receivable increased modestly to $8.65 billion at June 30, 2019, compared to $8.60 billion at March 31, 2019 and increased 14% when compared to $7.59 billion at June 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 $3.95 billion at June 30, 2019, unchanged from March 31, 2019, and increased 13% compared to $3.51 billion a year ago. Commercial business loans increased 5% to $1.60 billion at June 30, 2019, compared to $1.52 billion at March 31, 2019, and increased 22% compared to $1.31 billion a year ago. Agricultural business loans increased by 2% to $380.8 million at June 30, 2019, compared to $373.3 million three months earlier and increased by 13% compared to $336.7 million a year ago. Total construction, land and land development loans decreased slightly to $1.08 billion at June 30, 2019, compared to $1.10 billion at March 31, 2019 and increased 10% compared to $980.4 million a year earlier. Consumer loans increased 2% to $790.0 million at June 30, 2019, compared to $777.4 million at March 31, 2019 and increased 12% compared to $706.8 million a year ago. One- to four-family loans declined modestly to $944.6 million at June 30, 2019, compared to $967.6 million at March 31, 2019 and increased 12% compared to $840.5 million a year ago.
Loans held for sale increased substantially to $170.7 million at June 30, 2019, compared to $45.9 million at March 31, 2019 and $78.8 million at June 30, 2018. The volume of one- to four- family residential mortgage loans sold was $139.0 million in the current quarter, compared to $107.2 million in the preceding quarter and $124.1 million in the second quarter a year ago. During the second quarter of 2019, Banner did not sell any multifamily loans, compared to $149.9 million in the preceding quarter and $135.7 million in the second quarter a year ago.
Total deposits decreased slightly to $9.29 billion at June 30, 2019, compared to $9.38 billion at March 31, 2019 and increased 9% when compared to $8.53 billion a year ago, as the addition of deposits from the Skagit acquisition was partially offset by a $101.0 million decline in the use of brokered certificates of deposit from March 31, 2019 and a $141.7 million decline from a year ago. Non-interest-bearing account balances decreased slightly to $3.67 billion at June 30, 2019, compared to $3.68 billion at March 31, 2019 and increased 10% compared to $3.35 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased slightly from the prior quarter and increased 11% compared to a year ago. Core deposits represented 88% of total deposits at June 30, 2019, the same as the prior period and 87% of total deposits a year earlier. Certificates of deposit decreased 8% to $1.07 billion at June 30, 2019, compared to $1.16 billion at March 31, 2019 and decreased 7% compared to $1.15 billion a year earlier. The decrease in certificates of deposit primarily reflects the decrease in brokered deposits to $138.4 million at June 30, 2019, compared to $239.4 million at March 31, 2019 and $280.1 million a year earlier.
At June 30, 2019, total common shareholders' equity was $1.52 billion, or 12.84% of assets, compared to $1.51 billion or 12.87% of assets at March 31, 2019 and $1.25 billion or 12.07% of assets a year ago. At June 30, 2019, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.15 billion, or 10.05% of tangible assets*, compared to $1.14 billion, or 10.04% of tangible assets, at March 31, 2019 and $990.5 million, or 9.79% of tangible assets, a year ago. Banner's tangible book value per share* increased to $33.36 at June 30, 2019, compared to $30.57 per share a year ago.
Banner repurchased 600,000 shares of its common stock in the second quarter of 2019 at an average cost of $53.46 per share. During the first quarter there were no repurchases of 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 June 30, 2019, Banner's common equity Tier 1 capital ratio was 10.98%, its Tier 1 leverage capital to average assets ratio was 10.83%, and its total capital to risk-weighted assets ratio was 13.37%.
Credit Quality
The allowance for loan losses was $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% of non-performing loans compared to $97.3 million at March 31, 2019, or 1.12% of total loans receivable outstanding and 504% of non-performing loans, and $93.9 million at June 30, 2018, or 1.22% of total loans receivable outstanding and 613% of non-performing loans. Net loan charge-offs totaled $1.1 million in the second quarter, compared to net loan charge-offs of $1.2 million in the preceding quarter and net loan charge-offs of $332,000 in the second 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 $18.4 million at June 30, 2019, compared to $19.3 million at March 31, 2019 and $15.3 million a year ago. Real estate owned and other repossessed assets were $2.6 million at June 30, 2019, compared to $2.7 million at March 31, 2019 and $1.2 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.
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 June 30, 2019, the total purchase discount for acquired loans was $22.6 million.
Banner's total non-performing assets were $21.0 million, or 0.18% of total assets, at June 30, 2019, compared to $22.0 million, or 0.19% of total assets, at March 31, 2019, and $16.5 million, or 0.16% of total assets, a year ago. In addition to non-performing assets, there were $12.9 million purchased credit-impaired loans at June 30, 2019, compared to $13.3 million at March 31, 2019, and $18.1 million at June 30, 2018.


BANR -Second Quarter 2019 Results
July 24, 2019
Page 4

Conference Call
Banner will host a conference call on Thursday, July 25, 2019, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10132624, or at www.bannerbank.com.
About the Company
Banner Corporation is an $11.85 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 -Second Quarter 2019 Results
July 24, 2019
Page 5

RESULTS OF OPERATIONS
 
Quarters Ended
 
Six months ended
(in thousands except shares and per share data)
 
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
 
 
 
 
 
 
 
 
 
 
 
INTEREST INCOME:
 
 
 
 
 
 
 
 
 
 
Loans receivable
 
$
117,007

 
$
115,455

 
$
99,853

 
$
232,462

 
$
193,875

Mortgage-backed securities
 
9,794

 
10,507

 
8,899

 
20,301

 
16,230

Securities and cash equivalents
 
4,037

 
4,034

 
3,671

 
8,071

 
7,138

 
 
130,838

 
129,996

 
112,423

 
260,834

 
217,243

INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Deposits
 
9,023

 
8,643

 
4,264

 
17,666

 
7,622

Federal Home Loan Bank advances
 
3,370

 
3,476

 
1,499

 
6,846

 
2,177

Other borrowings
 
67

 
60

 
49

 
127

 
119

Junior subordinated debentures
 
1,683

 
1,713

 
1,548

 
3,396

 
2,889

 
 
14,143

 
13,892

 
7,360

 
28,035

 
12,807

Net interest income before provision for loan losses
 
116,695

 
116,104

 
105,063

 
232,799

 
204,436

PROVISION FOR LOAN LOSSES
 
2,000

 
2,000

 
2,000

 
4,000

 
4,000

Net interest income
 
114,695

 
114,104

 
103,063

 
228,799

 
200,436

NON-INTEREST INCOME:
 
 

 
 
 
 

 
 

 
 

Deposit fees and other service charges
 
14,046

 
12,618

 
11,985

 
26,664

 
23,281

Mortgage banking operations
 
5,936

 
3,415

 
4,643

 
9,351

 
9,507

Bank-owned life insurance
 
1,123

 
1,276

 
933

 
2,399

 
1,785

Miscellaneous
 
1,713

 
804

 
3,388

 
2,517

 
4,426

 
 
22,818

 
18,113

 
20,949

 
40,931

 
38,999

Net (loss) gain on sale of securities
 
(28
)
 
1

 
44

 
(27
)
 
48

Net change in valuation of financial instruments carried at fair value
 
(114
)
 
11

 
224

 
(103
)
 
3,532

Total non-interest income
 
22,676

 
18,125

 
21,217

 
40,801

 
42,579

NON-INTEREST EXPENSE:
 
 

 
 
 
 

 
 

 
 

Salary and employee benefits
 
55,629

 
54,640

 
51,494

 
110,269

 
101,561

Less capitalized loan origination costs
 
(7,399
)
 
(4,849
)
 
(4,733
)
 
(12,248
)
 
(8,744
)
Occupancy and equipment
 
12,681

 
13,766

 
11,574

 
26,447

 
23,340

Information / computer data services
 
5,273

 
5,326

 
4,564

 
10,599

 
8,945

Payment and card processing services
 
4,041

 
3,984

 
3,731

 
8,025

 
7,431

Professional and legal expenses
 
2,336

 
2,434

 
3,838

 
4,770

 
8,266

Advertising and marketing
 
2,065

 
1,529

 
2,141

 
3,594

 
3,971

Deposit insurance
 
1,418

 
1,418

 
1,021

 
2,836

 
2,362

State/municipal business and use taxes
 
1,007

 
945

 
816

 
1,952

 
1,529

Real estate operations
 
260

 
(123
)
 
(319
)
 
137

 
121

Amortization of core deposit intangibles
 
2,053

 
2,052

 
1,382

 
4,105

 
2,764

Miscellaneous
 
7,051

 
6,744

 
7,128

 
13,795

 
12,797

 
 
86,415

 
87,866

 
82,637

 
174,281

 
164,343

Acquisition-related expenses
 
301

 
2,148

 
—

 
2,449

 
—

Total non-interest expense
 
86,716

 
90,014

 
82,637

 
176,730

 
164,343

Income before provision for income taxes
 
50,655

 
42,215

 
41,643

 
92,870

 
78,672

PROVISION FOR INCOME TAXES
 
10,955

 
8,869

 
9,219

 
19,824

 
17,458

NET INCOME
 
$
39,700

 
$
33,346

 
$
32,424

 
$
73,046

 
$
61,214

Earnings per share available to common shareholders:
 
 

 
 
 
 

 
 

 
 

Basic
 
$
1.14

 
$
0.95

 
$
1.01

 
$
2.09

 
$
1.89

Diluted
 
$
1.14

 
$
0.95

 
$
1.00

 
$
2.09

 
$
1.89

Cumulative dividends declared per common share
 
$
0.41

 
$
0.41

 
$
0.85

 
$
0.82

 
$
1.20

Weighted average common shares outstanding:
 
 
 
 

 
 

 
 

 
 

Basic
 
34,831,047

 
35,050,376

 
32,250,514

 
34,940,106

 
32,323,635

Diluted
 
34,882,359

 
35,172,056

 
32,331,609

 
35,028,881

 
32,422,287

Decrease in common shares outstanding
 
(579,103
)
 
(30,026
)
 
(17,977
)
 
(609,129
)
 
(320,789
)


BANR -Second Quarter 2019 Results
July 24, 2019
Page 6

FINANCIAL  CONDITION
 
 
 
 
 
 
 
 
 
Percentage Change
(in thousands except shares and per share data)
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
187,043

 
$
218,458

 
$
231,029

 
$
195,652

 
(14.4
)%
 
(4.4
)%
Interest-bearing deposits
 
59,753

 
43,080

 
41,167

 
53,773

 
38.7
 %
 
11.1
 %
Total cash and cash equivalents
 
246,796

 
261,538

 
272,196

 
249,425

 
(5.6
)%
 
(1.1
)%
Securities - trading
 
25,741

 
25,838

 
25,896

 
25,640

 
(0.4
)%
 
0.4
 %
Securities - available for sale
 
1,561,009

 
1,603,804

 
1,636,223

 
1,400,312

 
(2.7
)%
 
11.5
 %
Securities - held to maturity
 
203,222

 
218,993

 
234,220

 
263,176

 
(7.2
)%
 
(22.8
)%
Total securities
 
1,789,972

 
1,848,635

 
1,896,339

 
1,689,128

 
(3.2
)%
 
6.0
 %
Federal Home Loan Bank stock
 
34,583

 
27,063

 
31,955

 
19,916

 
27.8
 %
 
73.6
 %
Loans held for sale
 
170,744

 
45,865

 
171,031

 
78,833

 
272.3
 %
 
116.6
 %
Loans receivable
 
8,746,550

 
8,692,657

 
8,684,595

 
7,684,732

 
0.6
 %
 
13.8
 %
Allowance for loan losses
 
(98,254
)
 
(97,308
)
 
(96,485
)
 
(93,875
)
 
1.0
 %
 
4.7
 %
Net loans receivable
 
8,648,296

 
8,595,349

 
8,588,110

 
7,590,857

 
0.6
 %
 
13.9
 %
Accrued interest receivable
 
40,238

 
41,220

 
38,593

 
34,004

 
(2.4
)%
 
18.3
 %
Real estate owned held for sale, net
 
2,513

 
2,611

 
2,611

 
473

 
(3.8
)%
 
431.3
 %
Property and equipment, net
 
171,233

 
171,057

 
171,809

 
153,224

 
0.1
 %
 
11.8
 %
Goodwill
 
339,154

 
339,154

 
339,154

 
242,659

 
—
 %
 
39.8
 %
Other intangibles, net
 
28,595

 
30,647

 
32,924

 
19,858

 
(6.7
)%
 
44.0
 %
Bank-owned life insurance
 
178,922

 
178,202

 
177,467

 
164,225

 
0.4
 %
 
8.9
 %
Other assets
 
196,328

 
198,944

 
149,128

 
136,592

 
(1.3
)%
 
43.7
 %
Total assets
 
$
11,847,374

 
$
11,740,285

 
$
11,871,317

 
$
10,379,194

 
0.9
 %
 
14.1
 %
LIABILITIES
 
 
 
 

 
 

 
 

 
 
 
 
Deposits:
 
 
 
 

 
 

 
 

 
 
 
 
Non-interest-bearing
 
$
3,671,995

 
$
3,676,984

 
$
3,657,817

 
$
3,346,777

 
(0.1
)%
 
9.7
 %
Interest-bearing transaction and savings accounts
 
4,546,202

 
4,535,969

 
4,498,966

 
4,032,283

 
0.2
 %
 
12.7
 %
Interest-bearing certificates
 
1,070,770

 
1,163,276

 
1,320,265

 
1,148,607

 
(8.0
)%
 
(6.8
)%
Total deposits
 
9,288,967

 
9,376,229

 
9,477,048

 
8,527,667

 
(0.9
)%
 
8.9
 %
Advances from Federal Home Loan Bank
 
606,000

 
418,000

 
540,189

 
239,190

 
45.0
 %
 
153.4
 %
Customer repurchase agreements and other borrowings
 
118,370

 
121,719

 
118,995

 
112,458

 
(2.8
)%
 
5.3
 %
Junior subordinated debentures at fair value
 
113,621

 
113,917

 
114,091

 
112,774

 
(0.3
)%
 
0.8
 %
Accrued expenses and other liabilities
 
159,131

 
158,669

 
102,061

 
93,281

 
0.3
 %
 
70.6
 %
Deferred compensation
 
40,230

 
40,560

 
40,338

 
40,814

 
(0.8
)%
 
(1.4
)%
Total liabilities
 
10,326,319

 
10,229,094

 
10,392,722

 
9,126,184

 
1.0
 %
 
13.2
 %
SHAREHOLDERS' EQUITY
 
 
 
 

 
 

 
 

 
 
 


Common stock
 
1,306,888

 
1,338,386

 
1,337,436

 
1,173,656

 
(2.4
)%
 
11.4
 %
Retained earnings
 
178,257

 
152,911

 
134,055

 
84,485

 
16.6
 %
 
111.0
 %
Other components of shareholders' equity
 
35,910

 
19,894

 
7,104

 
(5,131
)
 
80.5
 %
 
nm

Total shareholders' equity
 
1,521,055

 
1,511,191

 
1,478,595

 
1,253,010

 
0.7
 %
 
21.4
 %
Total liabilities and shareholders' equity
 
$
11,847,374

 
$
11,740,285

 
$
11,871,317

 
$
10,379,194

 
0.9
 %
 
14.1
 %
Common Shares Issued:
 
 
 
 

 
 

 
 

 
 
 
 
Shares outstanding at end of period
 
34,573,643

 
35,152,746

 
35,182,772

 
32,405,696

 
 
 
 
Common shareholders' equity per share (1)
 
$
43.99

 
$
42.99

 
$
42.03

 
$
38.67

 
 
 
 
Common shareholders' tangible equity per share (1) (2)
 
$
33.36

 
$
32.47

 
$
31.45

 
$
30.57

 
 
 
 
Common shareholders' tangible equity to tangible assets (2)
 
10.05
%
 
10.04
%
 
9.62
%
 
9.79
%
 
 
 
 
Consolidated Tier 1 leverage capital ratio
 
10.83
%
 
10.73
%
 
10.98
%
 
10.80
%
 
 
 
 
(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 -Second Quarter 2019 Results
July 24, 2019
Page 7

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
LOANS
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
$
1,433,995

 
$
1,442,724

 
$
1,430,097

 
$
1,256,730

 
(0.6
)%
 
14.1
%
Investment properties
 
2,116,306

 
2,124,049

 
2,131,059

 
1,920,790

 
(0.4
)%
 
10.2
%
Multifamily real estate
 
402,241

 
387,142

 
368,836

 
330,384

 
3.9
 %
 
21.7
%
Commercial construction
 
172,931

 
181,888

 
172,410

 
166,089

 
(4.9
)%
 
4.1
%
Multifamily construction
 
189,160

 
183,203

 
184,630

 
147,576

 
3.3
 %
 
28.2
%
One- to four-family construction
 
503,061

 
514,468

 
534,678

 
480,591

 
(2.2
)%
 
4.7
%
Land and land development:
 
 
 
 
 
 

 
 

 
 
 
 
Residential
 
187,180

 
187,660

 
188,508

 
163,335

 
(0.3
)%
 
14.6
%
Commercial
 
27,470

 
28,928

 
27,278

 
22,849

 
(5.0
)%
 
20.2
%
Commercial business
 
1,598,788

 
1,524,298

 
1,483,614

 
1,312,424

 
4.9
 %
 
21.8
%
Agricultural business including secured by farmland
 
380,805

 
373,322

 
404,873

 
336,709

 
2.0
 %
 
13.1
%
One- to four-family real estate
 
944,617

 
967,581

 
973,616

 
840,470

 
(2.4
)%
 
12.4
%
Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Consumer secured by one- to four-family real estate
 
575,658

 
564,872

 
568,979

 
536,007

 
1.9
 %
 
7.4
%
Consumer-other
 
214,338

 
212,522

 
216,017

 
170,778

 
0.9
 %
 
25.5
%
Total loans receivable
 
$
8,746,550

 
$
8,692,657

 
$
8,684,595

 
$
7,684,732

 
0.6
 %
 
13.8
%
Restructured loans performing under their restructured terms
 
$
6,594

 
$
13,036

 
$
13,422

 
$
13,793

 
 
 
 
Loans 30 - 89 days past due and on accrual (1)
 
$
17,923

 
$
28,972

 
$
25,108

 
$
8,040

 
 
 
 
Total delinquent loans (including loans on non-accrual), net (2)
 
$
34,749

 
$
46,616

 
$
38,721

 
$
22,620

 
 
 
 
Total delinquent loans  /  Total loans receivable
 
0.40
%
 
0.54
%
 
0.45
%
 
0.29
%
 
 
 
 

(1) Includes $21,000 of purchased credit-impaired loans at June 30, 2019 compared to $3,000 at December 31, 2018 and $6,000 at June 30, 2018.
(2) Delinquent loans include $330,000 of delinquent purchased credit-impaired loans at June 30, 2019 compared to $519,000 at December 31, 2018 and $1.0 million at June 30, 2018.

LOANS BY GEOGRAPHIC LOCATION
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington
 
$
4,293,854

 
49.1%
 
$
4,329,759

 
$
4,324,588

 
$
3,550,945

 
(0.8
)%
 
20.9
 %
Oregon
 
1,628,102

 
18.6%
 
1,639,427

 
1,636,152

 
1,601,939

 
(0.7
)%
 
1.6
 %
California
 
1,659,326

 
19.0%
 
1,581,654

 
1,596,604

 
1,477,293

 
4.9
 %
 
12.3
 %
Idaho
 
548,189

 
6.3%
 
524,705

 
521,026

 
500,201

 
4.5
 %
 
9.6
 %
Utah
 
62,944

 
0.7%
 
59,940

 
57,318

 
76,414

 
5.0
 %
 
(17.6
)%
Other
 
554,135

 
6.3%
 
557,172

 
548,907

 
477,940

 
(0.5
)%
 
15.9
 %
Total loans receivable
 
$
8,746,550

 
100.0%
 
$
8,692,657

 
$
8,684,595

 
$
7,684,732

 
0.6
 %
 
13.8
 %





BANR -Second Quarter 2019 Results
July 24, 2019
Page 8


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)


The following table shows loan originations (excluding loans held for sale) activity for the quarters ending June 30, 2019, March 31, 2019, and June 30, 2018 and the six months ending June 30, 2019 and June 30, 2018 (in thousands):
LOAN ORIGINATIONS
Quarters Ended
 
Six Months Ended
 
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Commercial real estate
$
81,361

 
$
94,196

 
$
155,781

 
$
175,557

 
$
221,506

Multifamily real estate
21,651

 
7,617

 
6,090

 
29,267

 
6,825

Construction and land
368,224

 
233,494

 
361,427

 
601,718

 
692,350

Commercial business
241,134

 
125,912

 
195,909

 
367,046

 
328,896

Agricultural business
20,702

 
32,059

 
41,480

 
52,761

 
68,054

One-to four-family residential
26,210

 
31,789

 
26,416

 
57,999

 
44,351

Consumer
119,970

 
63,774

 
114,289

 
183,743

 
184,822

Total loan originations (excluding loans held for sale)
$
879,252

 
$
588,841

 
$
901,392

 
$
1,468,091

 
$
1,546,804





BANR -Second Quarter 2019 Results
July 24, 2019
Page 9

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
  Quarters Ended
 
Six months ended
CHANGE IN THE
 
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
97,308

 
$
96,485

 
$
92,207

 
$
96,485

 
$
89,028

Provision for loan losses
 
2,000

 
2,000

 
2,000

 
4,000

 
4,000

Recoveries of loans previously charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
149

 
21

 
216

 
170

 
1,568

Construction and land
 
30

 
22

 
11

 
52

 
185

One- to four-family real estate
 
230

 
43

 
356

 
273

 
646

Commercial business
 
215

 
23

 
100

 
238

 
270

Agricultural business, including secured by farmland
 
35

 
—

 
41

 
35

 
41

Consumer
 
223

 
110

 
106

 
333

 
218

 
 
882

 
219

 
830

 
1,101

 
2,928

Loans charged off:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
(393
)
 
(431
)
 
(299
)
 
(824
)
 
(299
)
One- to four-family real estate
 
—

 
—

 
—

 
—

 
(16
)
Commercial business
 
(802
)
 
(590
)
 
(375
)
 
(1,392
)
 
(894
)
Agricultural business, including secured by farmland
 
(162
)
 
(4
)
 
(329
)
 
(166
)
 
(336
)
Consumer
 
(579
)
 
(371
)
 
(159
)
 
(950
)
 
(536
)
 
 
(1,936
)
 
(1,396
)
 
(1,162
)
 
(3,332
)
 
(2,081
)
Net (charge-offs) recoveries
 
(1,054
)
 
(1,177
)
 
(332
)
 
(2,231
)
 
847

Balance, end of period
 
$
98,254

 
$
97,308

 
$
93,875

 
$
98,254

 
$
93,875

Net (charge-offs) recoveries / Average loans receivable
 
(0.012
)%
 
(0.013
)%
 
(0.004
)%
 
(0.025
)%
 
0.011
%


ALLOCATION OF
 
 
 
 
 
 
 
 
ALLOWANCE FOR LOAN LOSSES
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
Specific or allocated loss allowance:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
26,730

 
$
27,091

 
$
27,132

 
$
24,413

Multifamily real estate
 
4,344

 
4,020

 
3,818

 
3,718

Construction and land
 
23,554

 
23,713

 
24,442

 
27,034

One- to four-family real estate
 
4,701

 
4,711

 
4,714

 
3,932

Commercial business
 
19,557

 
18,662

 
19,438

 
19,141

Agricultural business, including secured by farmland
 
3,691

 
3,596

 
3,778

 
3,162

Consumer
 
8,452

 
7,980

 
7,972

 
5,725

Total allocated
 
91,029

 
89,773

 
91,294

 
87,125

Unallocated
 
7,225

 
7,535

 
5,191

 
6,750

Total allowance for loan losses
 
$
98,254

 
$
97,308

 
$
96,485

 
$
93,875

Allowance for loan losses / Total loans receivable
 
1.12
%
 
1.12
%
 
1.11
%
 
1.22
%
Allowance for loan losses / Non-performing loans
 
534
%
 
504
%
 
616
%
 
613
%





BANR -Second Quarter 2019 Results
July 24, 2019
Page 10



ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
NON-PERFORMING ASSETS
 
 
 
 
 
 
 
Loans on non-accrual status:
 
 
 
 
 
 
 
Secured by real estate:
 
 
 
 
 
 
 
Commercial
$
4,603

 
$
5,734

 
$
4,088

 
$
4,341

Construction and land
2,214

 
3,036

 
3,188

 
1,176

One- to four-family
2,665

 
1,538

 
1,544

 
2,281

Commercial business
2,983

 
3,614

 
2,936

 
2,673

Agricultural business, including secured by farmland
1,359

 
2,507

 
1,751

 
1,712

Consumer
3,230

 
2,181

 
1,241

 
1,176

 
17,054

 
18,610

 
14,748

 
13,359

Loans more than 90 days delinquent, still on accrual:
 
 
 

 
 

 
 

Secured by real estate:
 
 
 

 
 

 
 

Construction and land
262

 
—

 
—

 
784

One- to four-family
995

 
640

 
658

 
905

Commercial business
1

 
1

 
1

 
1

Consumer
97

 
42

 
247

 
253

 
1,355

 
683

 
906

 
1,943

Total non-performing loans
18,409

 
19,293

 
15,654

 
15,302

Real estate owned (REO)
2,513

 
2,611

 
2,611

 
473

Other repossessed assets
112

 
50

 
592

 
733

Total non-performing assets
$
21,034

 
$
21,954

 
$
18,857

 
$
16,508

Total non-performing assets to total assets
0.18
%
 
0.19
%
 
0.16
%
 
0.16
%
Purchased credit-impaired loans, net
$
12,945

 
$
13,330

 
$
14,413

 
$
18,063


 
Quarters Ended
 
Six months ended
REAL ESTATE OWNED
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Balance, beginning of period
$
2,611

 
$
2,611

 
$
328

 
$
2,611

 
$
360

Additions from loan foreclosures
61

 
—

 
393

 
61

 
521

Proceeds from dispositions of REO
(150
)
 
—

 
(314
)
 
(150
)
 
(314
)
Gain on sale of REO
(9
)
 
—

 
66

 
(9
)
 
66

Valuation adjustments in the period
—

 
—

 
—

 
—

 
(160
)
Balance, end of period
$
2,513

 
$
2,611

 
$
473

 
$
2,513

 
$
473




BANR -Second Quarter 2019 Results
July 24, 2019
Page 11




ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEPOSIT COMPOSITION
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
 
$
3,671,995

 
$
3,676,984

 
$
3,657,817

 
$
3,346,777

 
(0.1
)%
 
9.7
 %
Interest-bearing checking
 
1,187,035

 
1,174,169

 
1,191,016

 
1,012,519

 
1.1
 %
 
17.2
 %
Regular savings accounts
 
1,848,048

 
1,865,852

 
1,842,581

 
1,635,080

 
(1.0
)%
 
13.0
 %
Money market accounts
 
1,511,119

 
1,495,948

 
1,465,369

 
1,384,684

 
1.0
 %
 
9.1
 %
Total interest-bearing transaction and savings accounts
 
4,546,202

 
4,535,969

 
4,498,966

 
4,032,283

 
0.2
 %
 
12.7
 %
Total core deposits
 
8,218,197

 
8,212,953

 
8,156,783

 
7,379,060

 
0.1
 %
 
11.4
 %
Interest-bearing certificates
 
1,070,770

 
1,163,276

 
1,320,265

 
1,148,607

 
(8.0
)%
 
(6.8
)%
Total deposits
 
$
9,288,967

 
$
9,376,229

 
$
9,477,048

 
$
8,527,667

 
(0.9
)%
 
8.9
 %


GEOGRAPHIC CONCENTRATION OF DEPOSITS
 
 
 
 
 
 
 
 
 
 
 
Percentage Change
 
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
 
Prior Qtr
 
Prior Yr Qtr
 
 
Amount
 
Percentage
 
Amount
 
Amount
 
Amount
 
 
 
 
Washington
 
$
5,503,280

 
59.2%
 
$
5,604,567

 
$
5,674,328

 
$
4,735,357

 
(1.8
)%
 
16.2
 %
Oregon
 
1,919,051

 
20.7%
 
1,906,132

 
1,891,145

 
1,886,435

 
0.7
 %
 
1.7
 %
California
 
1,399,137

 
15.1%
 
1,402,213

 
1,434,033

 
1,444,413

 
(0.2
)%
 
(3.1
)%
Idaho
 
467,499

 
5.0%
 
463,317

 
477,542

 
461,462

 
0.9
 %
 
1.3
 %
Total deposits
 
$
9,288,967

 
100.0%
 
$
9,376,229

 
$
9,477,048

 
$
8,527,667

 
(0.9
)%
 
8.9
 %


INCLUDED IN TOTAL DEPOSITS
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
Public non-interest-bearing accounts
 
$
102,348

 
$
92,122

 
$
96,009

 
$
86,040

Public interest-bearing transaction & savings accounts
 
121,262

 
118,033

 
121,392

 
114,457

Public interest-bearing certificates
 
28,656

 
29,572

 
30,089

 
24,390

Total public deposits
 
$
252,266

 
$
239,727

 
$
247,490

 
$
224,887

Total brokered deposits
 
$
138,395

 
$
239,444

 
$
377,347

 
$
280,055




 
 
 
 
 
 
 



BANR -Second Quarter 2019 Results
July 24, 2019
Page 12

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 JUNE 30, 2019
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
Banner Corporation-consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
      Total capital to risk-weighted assets
 
$
1,327,875

 
13.37
%
 
$
794,575

 
8.00
%
 
$
993,218

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,227,022

 
12.35
%
 
595,931

 
6.00
%
 
595,931

 
6.00
%
      Tier 1 leverage capital to average assets
 
1,227,022

 
10.83
%
 
453,256

 
4.00
%
 
n/a

 
n/a

      Common equity tier 1 capital to risk-weighted assets
 
1,091,022

 
10.98
%
 
446,948

 
4.50
%
 
n/a

 
n/a

Banner Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
1,236,298

 
12.69
%
 
779,191

 
8.00
%
 
973,989

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
1,137,866

 
11.68
%
 
584,393

 
6.00
%
 
779,191

 
8.00
%
      Tier 1 leverage capital to average assets
 
1,137,866

 
10.30
%
 
442,043

 
4.00
%
 
552,553

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
1,137,866

 
11.68
%
 
438,295

 
4.50
%
 
633,093

 
6.50
%
Islanders Bank:
 
 

 
 

 
 
 
 
 
 

 
 

      Total capital to risk-weighted assets
 
35,804

 
18.80
%
 
15,239

 
8.00
%
 
19,049

 
10.00
%
      Tier 1 capital to risk-weighted assets
 
33,422

 
17.54
%
 
11,430

 
6.00
%
 
15,239

 
8.00
%
      Tier 1 leverage capital to average assets
 
33,422

 
12.00
%
 
11,143

 
4.00
%
 
13,929

 
5.00
%
      Common equity tier 1 capital to risk-weighted assets
 
33,422

 
17.54
%
 
8,572

 
4.50
%
 
12,382

 
6.50
%





BANR -Second Quarter 2019 Results
July 24, 2019
Page 13

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Quarters Ended
 
June 30, 2019
 
March 31, 2019
 
June 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
$
47,663

$
567

4.77
%
 
$
98,005

$
1,121

4.64
%
 
$
112,664

$
1,295

4.61
%
Mortgage loans
6,800,802

89,682

5.29
%
 
6,833,933

88,602

5.26
%
 
6,050,560

76,908

5.10
%
Commercial/agricultural loans
1,769,603

23,924

5.42
%
 
1,703,503

22,812

5.43
%
 
1,479,148

19,381

5.26
%
Consumer and other loans
179,693

2,834

6.33
%
 
183,451

2,920

6.46
%
 
141,401

2,269

6.44
%
Total loans(1)
8,797,761

117,007

5.33
%
 
8,818,892

115,455

5.31
%
 
7,783,773

99,853

5.15
%
Mortgage-backed securities
1,354,048

9,794

2.90
%
 
1,392,118

10,507

3.06
%
 
1,261,809

8,899

2.83
%
Other securities
448,721

3,310

2.96
%
 
484,134

3,479

2.91
%
 
473,953

3,331

2.82
%
Interest-bearing deposits with banks
53,955

340

2.53
%
 
44,757

289

2.62
%
 
51,886

211

1.63
%
FHLB stock
30,902

387

5.02
%
 
31,761

266

3.40
%
 
22,231

129

2.33
%
Total investment securities
1,887,626

13,831

2.94
%
 
1,952,770

14,541

3.02
%
 
1,809,879

12,570

2.79
%
Total interest-earning assets
10,685,387

130,838

4.91
%
 
10,771,662

129,996

4.89
%
 
9,593,652

112,423

4.70
%
Non-interest-earning assets
1,048,811

 
 
 
1,031,591

 
 
 
804,229

 
 
Total assets
$
11,734,198

 
 
 
$
11,803,253

 
 
 
$
10,397,881

 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking accounts
$
1,177,534

564

0.19
%
 
$
1,153,949

475

0.17
%
 
$
1,051,409

281

0.11
%
Savings accounts
1,851,913

2,119

0.46
%
 
1,854,123

1,920

0.42
%
 
1,648,739

811

0.20
%
Money market accounts
1,497,717

2,656

0.71
%
 
1,490,326

2,251

0.61
%
 
1,419,578

792

0.22
%
Certificates of deposit
1,105,844

3,684

1.34
%
 
1,253,613

3,997

1.29
%
 
1,067,742

2,380

0.89
%
Total interest-bearing deposits
5,633,008

9,023

0.64
%
 
5,752,011

8,643

0.61
%
 
5,187,468

4,264

0.33
%
Non-interest-bearing deposits
3,652,096

—

—
%
 
3,605,922

—

—
%
 
3,324,104

—

—
%
Total deposits
9,285,104

9,023

0.39
%
 
9,357,933

8,643

0.37
%
 
8,511,572

4,264

0.20
%
Other interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
FHLB advances
514,703

3,370

2.63
%
 
534,238

3,476

2.64
%
 
296,495

1,499

2.03
%
Other borrowings
122,455

67

0.22
%
 
118,008

60

0.21
%
 
105,013

49

0.19
%
Junior subordinated debentures
140,212

1,683

4.81
%
 
140,212

1,713

4.95
%
 
140,212

1,548

4.43
%
Total borrowings
777,370

5,120

2.64
%
 
792,458

5,249

2.69
%
 
541,720

3,096

2.29
%
Total funding liabilities
10,062,474

14,143

0.56
%
 
10,150,391

13,892

0.56
%
 
9,053,292

7,360

0.33
%
Other non-interest-bearing liabilities(2)
151,436

 
 
 
151,937

 
 
 
75,784

 
 
Total liabilities
10,213,910

 
 
 
10,302,328

 
 
 
9,129,076

 
 
Shareholders' equity
1,520,288

 
 
 
1,500,925

 
 
 
1,268,805

 
 
Total liabilities and shareholders' equity
$
11,734,198

 
 
 
$
11,803,253

 
 
 
$
10,397,881

 
 
Net interest income/rate spread
 
$
116,695

4.35
%
 
 
$
116,104

4.33
%
 
 
$
105,063

4.37
%
Net interest margin
 
 
4.38
%
 
 
 
4.37
%
 
 
 
4.39
%
Additional Key Financial Ratios:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
 
1.36
%
 
 
 
1.15
%
 
 
 
1.25
%
Return on average equity
 
 
10.47
%
 
 
 
9.01
%
 
 
 
10.25
%
Average equity/average assets
 
 
12.96
%
 
 
 
12.72
%
 
 
 
12.20
%
Average interest-earning assets/average interest-bearing liabilities
 
 
166.69
%
 
 
 
164.59
%
 
 
 
167.45
%
Average interest-earning assets/average funding liabilities
 
 
106.19
%
 
 
 
106.12
%
 
 
 
105.97
%
Non-interest income/average assets
 
 
0.78
%
 
 
 
0.62
%
 
 
 
0.82
%
Non-interest expense/average assets
 
 
2.96
%
 
 
 
3.09
%
 
 
 
3.19
%
Efficiency ratio(4)
 
 
62.22
%
 
 
 
67.06
%
 
 
 
65.44
%
Adjusted efficiency ratio(5)
 
 
59.56
%
 
 
 
63.32
%
 
 
 
64.09
%
(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 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 -Second Quarter 2019 Results
July 24, 2019
Page 14

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
(rates / ratios annualized)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANALYSIS OF NET INTEREST SPREAD
Six months ended
 
June 30, 2019
 
June 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
$
72,694

$
1,688

4.68
%
 
$
85,815

$
1,976

4.64
%
Mortgage loans
6,817,276

178,284

5.27
%
 
6,028,667

150,573

5.04
%
Commercial/agricultural loans
1,736,735

46,736

5.43
%
 
1,467,789

36,803

5.06
%
Consumer and other loans
181,562

5,754

6.39
%
 
141,016

4,523

6.47
%
Total loans(1)
8,808,267

232,462

5.32
%
 
7,723,287

193,875

5.06
%
Mortgage-backed securities
1,372,978

20,301

2.98
%
 
1,160,407

16,230

2.82
%
Other securities
466,330

6,789

2.94
%
 
468,480

6,420

2.76
%
Interest-bearing deposits with banks
49,382

629

2.57
%
 
58,164

442

1.53
%
FHLB stock
31,329

653

4.20
%
 
19,406

276

2.87
%
Total investment securities
1,920,019

28,372

2.98
%
 
1,706,457

23,368

2.76
%
Total interest-earning assets
10,728,286

260,834

4.90
%
 
9,429,744

217,243

4.65
%
Non-interest-earning assets
1,040,248

 
 
 
804,862

 
 
Total assets
$
11,768,534

 
 
 
$
10,234,606

 
 
Deposits:
 
 
 
 
 
 
 
Interest-bearing checking accounts
$
1,165,807

1,039

0.18
%
 
$
1,027,800

527

0.10
%
Savings accounts
1,853,012

4,039

0.44
%
 
1,625,335

1,438

0.18
%
Money market accounts
1,494,042

4,907

0.66
%
 
1,431,068

1,458

0.21
%
Certificates of deposit
1,179,320

7,681

1.31
%
 
1,033,431

4,199

0.82
%
Total interest-bearing deposits
5,692,181

17,666

0.63
%
 
5,117,634

7,622

0.30
%
Non-interest-bearing deposits
3,629,136

—

—
%
 
3,303,509

—

—
%
Total deposits
9,321,317

17,666

0.38
%
 
8,421,143

7,622

0.18
%
Other interest-bearing liabilities:
 
 
 
 
 
 
 
FHLB advances
524,417

6,846

2.63
%
 
226,407

2,177

1.94
%
Other borrowings
120,243

127

0.21
%
 
103,073

119

0.23
%
Junior subordinated debentures
140,212

3,396

4.88
%
 
140,212

2,889

4.16
%
Total borrowings
784,872

10,369

2.66
%
 
469,692

5,185

2.23
%
Total funding liabilities
10,106,189

28,035

0.56
%
 
8,890,835

12,807

0.29
%
Other non-interest-bearing liabilities(2)
151,685

 
 
 
70,908

 
 
Total liabilities
10,257,874

 
 
 
8,961,743

 
 
Shareholders' equity
1,510,660

 
 
 
1,272,863

 
 
Total liabilities and shareholders' equity
$
11,768,534

 
 
 
$
10,234,606

 
 
Net interest income/rate spread
 
$
232,799

4.34
%
 
 
$
204,436

4.36
%
Net interest margin
 
 
4.38
%
 
 
 
4.37
%
Additional Key Financial Ratios:
 
 
 
 
 
 
 
Return on average assets
 
 
1.25
%
 
 
 
1.21
%
Return on average equity
 
 
9.75
%
 
 
 
9.70
%
Average equity/average assets
 
 
12.84
%
 
 
 
12.44
%
Average interest-earning assets/average interest-bearing liabilities
 
 
165.64
%
 
 
 
168.77
%
Average interest-earning assets/average funding liabilities
 
 
106.16
%
 
 
 
106.06
%
Non-interest income/average assets
 
 
0.70
%
 
 
 
0.84
%
Non-interest expense/average assets
 
 
3.03
%
 
 
 
3.24
%
Efficiency ratio(4)
 
 
64.59
%
 
 
 
66.53
%
Adjusted efficiency ratio(5)
 
 
61.41
%
 
 
 
65.70
%
(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 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 -Second Quarter 2019 Results
July 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
 
Six months ended
 
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Net interest income before provision for loan losses
$
116,695

 
$
116,104

 
$
105,063

 
$
232,799

 
$
204,436

Total non-interest income
22,676

 
18,125

 
21,217

 
40,801

 
42,579

Total GAAP revenue
139,371

 
134,229

 
126,280

 
273,600

 
247,015

Exclude net loss (gain) on sale of securities
28

 
(1
)
 
(44
)
 
27

 
(48
)
Exclude net change in valuation of financial instruments carried at fair value
114

 
(11
)
 
(224
)
 
103

 
(3,532
)
Revenue from core operations (non-GAAP)
$
139,513

 
$
134,217

 
$
126,012

 
$
273,730

 
$
243,435



EARNINGS FROM CORE OPERATIONS
 
Quarters Ended
 
Six months ended
 
 
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Net income (GAAP)
 
$
39,700

 
$
33,346

 
$
32,424

 
$
73,046

 
$
61,214

 Exclude net loss (gain) on sale of securities
 
28

 
(1
)
 
(44
)
 
27

 
(48
)
Exclude net change in valuation of financial instruments carried at fair value
 
114

 
(11
)
 
(224
)
 
103

 
(3,532
)
Exclude acquisition-related expenses
 
301

 
2,148

 
—

 
2,449

 
—

Exclude related tax (benefit) expense
 
(106
)
 
(513
)
 
64

 
(619
)
 
859

Total earnings from core operations (non-GAAP)
 
$
40,037

 
$
34,969

 
$
32,220

 
$
75,006

 
$
58,493

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share (GAAP)
 
$
1.14

 
$
0.95

 
$
1.00

 
$
2.09

 
$
1.89

Diluted core earnings per share (non-GAAP)
 
$
1.15

 
$
0.99

 
$
1.00

 
$
2.14

 
$
1.80




BANR -Second Quarter 2019 Results
July 24, 2019
Page 16

ADDITIONAL FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
ADJUSTED EFFICIENCY RATIO
 
Quarters Ended
 
Six months ended
 
 
Jun 30, 2019
 
Mar 31, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Non-interest expense (GAAP)
 
$
86,716

 
$
90,014

 
$
82,637

 
$
176,730

 
$
164,343

Exclude acquisition-related expenses
 
(301
)
 
(2,148
)
 
—

 
(2,449
)
 
—

Exclude CDI amortization
 
(2,053
)
 
(2,052
)
 
(1,382
)
 
(4,105
)
 
(2,764
)
Exclude state/municipal tax expense
 
(1,007
)
 
(945
)
 
(816
)
 
(1,952
)
 
(1,529
)
Exclude REO (loss) gain
 
(260
)
 
123

 
319

 
(137
)
 
(121
)
Adjusted non-interest expense (non-GAAP)
 
$
83,095

 
$
84,992

 
$
80,758

 
$
168,087

 
$
159,929

 
 
 
 
 
 
 
 
 
 
 
Net interest income before provision for loan losses (GAAP)
 
$
116,695

 
$
116,104

 
$
105,063

 
$
232,799

 
$
204,436

Non-interest income (GAAP)
 
22,676

 
18,125

 
21,217

 
40,801

 
42,579

Total revenue
 
139,371

 
134,229

 
126,280

 
273,600

 
247,015

Exclude net loss (gain) on sale of securities
 
28

 
(1
)
 
(44
)
 
27

 
(48
)
Exclude net change in valuation of financial instruments carried at fair value
 
114

 
(11
)
 
(224
)
 
103

 
(3,532
)
Revenue from core operations (non-GAAP)
 
$
139,513

 
$
134,217

 
$
126,012

 
$
273,730

 
$
243,435

 
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (GAAP)
 
62.22
%
 
67.06
%
 
65.44
%
 
64.59
%
 
66.53
%
Adjusted efficiency ratio (non-GAAP)
 
59.56
%
 
63.32
%
 
64.09
%
 
61.41
%
 
65.70
%

TANGIBLE COMMON SHAREHOLDERS' EQUITY TO TANGIBLE ASSETS
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Jun 30, 2018
Shareholders' equity (GAAP)
 
$
1,521,055

 
$
1,511,191

 
$
1,478,595

 
$
1,253,010

Exclude goodwill and other intangible assets, net
 
367,749

 
369,801

 
372,078

 
262,517

Tangible common shareholders' equity (non-GAAP)
 
$
1,153,306

 
$
1,141,390

 
$
1,106,517

 
$
990,493

 
 
 
 
 
 
 
 
 
Total assets (GAAP)
 
$
11,847,374

 
$
11,740,285

 
$
11,871,317

 
$
10,379,194

Exclude goodwill and other intangible assets, net
 
367,749

 
369,801

 
372,078

 
262,517

Total tangible assets (non-GAAP)
 
$
11,479,625

 
$
11,370,484

 
$
11,499,239

 
$
10,116,677

Common shareholders' equity to total assets (GAAP)
 
12.84
%
 
12.87
%
 
12.46
%
 
12.07
%
Tangible common shareholders' equity to tangible assets (non-GAAP)
 
10.05
%
 
10.04
%
 
9.62
%
 
9.79
%
 
 
 
 
 
 
 
 
 
TANGIBLE COMMON SHAREHOLDERS' EQUITY PER SHARE
 
 
 
 
 
 
 
 
Tangible common shareholders' equity (non-GAAP)
 
$
1,153,306

 
$
1,141,390

 
$
1,106,517

 
$
990,493

Common shares outstanding at end of period
 
34,573,643

 
35,152,746

 
35,182,772

 
32,405,696

Common shareholders' equity (book value) per share (GAAP)
 
$
43.99

 
$
42.99

 
$
42.03

 
$
38.67

Tangible common shareholders' equity (tangible book value) per share (non-GAAP)
 
$
33.36

 
$
32.47

 
$
31.45

 
$
30.57